Transactional issuesSPV forms
Which forms can special purpose vehicles take in a securitisation transaction?
First, it should be decided whether to use a Swiss vehicle or a foreign vehicle. Various considerations should be made, depending on the underlying asset.
Generally, it will be very difficult to use non-Swiss SPVs where the underlying asset relates to real estate located in Switzerland, given that cantonal withholding taxes may be incurred on any interest payment secured by Swiss real estate.
Also, it might be the case that the transfer of a receivable or an asset abroad is not desirable for other reasons, such as data protection considerations, particularly where the underlying documentation does not provide for a proper waiver of data protection.
Furthermore, interest payments on debt instruments issued by a Swiss vehicle directly to multiple investors attract Swiss withholding tax at a rate of 35 per cent. While Swiss withholding tax is generally recoverable, the process for doing so might be burdensome for non-Swiss investors and even a Swiss investor would suffer a delay in recovering the withholding tax. If an investor is located in a jurisdiction that does not benefit from favourable double tax treaties or does not otherwise benefit from treaty protection (such as tax-transparent funds), Swiss withholding tax might not be fully recoverable, if at all. Swiss withholding tax can be structured away if a non-Swiss vehicle is used. However, this adds much complexity to the structuring process because there will also be a strong focus on the true sale analysis from a tax perspective.
Finally, Swiss originators that do not form a presence abroad normally have the inclination to go with a Swiss SPV for cost-efficiency and organisational purposes.
In Switzerland, an SPV may take the form of a limited liability stock corporation (AG) or a limited liability company (GmbH).SPV formation process
What is involved in forming the different types of SPVs in your jurisdiction?
The formation of an AG or GmbH is relatively straightforward and takes between two and four weeks, depending on the relevant cantonal commercial register involved. Minimum capitalisation for the AG is 100,000 Swiss francs and for the GmbH 20,000 Swiss francs. This is, however, often irrelevant, because originators frequently hold equity pieces instead. Formation costs are minimal and would not exceed a couple of thousand Swiss francs.
Typically, Swiss SPVs are held by the respective originator (given that availability of charitable trust structures or similar structures is limited in Switzerland), but some rating agencies request the implementation of golden shareholder structures that provide the (independent) golden shareholder or shareholders with some control (veto rights) at the level of the shareholders’ meeting. However, accounting considerations may require the SPV to be held by fully independent shareholders. Essentially, all transactions involving Swiss SPVs provide for an independent director structure giving the independent director some control (veto rights) at board level.Governing law
Is it possible to stipulate which jurisdiction’s law applies to the assignment of receivables to the SPV?
Yes. Under Swiss conflict-of-law rules, the transfer and assignment of a right or a receivable can generally be governed by the law chosen by the parties concerned. However, according to article 145 of the Swiss Private International Law Act, choosing a law in favour of a law other than that governing the underlying right or receivable may not be asserted against the underlying obligor under the assigned receivable, unless the obligor agreed to the choice of law. Therefore, consent being absent, the general approach is to have the assignment and transfer governed by the law of the underlying right or receivable.Asset acquisition and transfer
May an SPV acquire new assets or transfer its assets after issuance of its securities? Under what conditions?
Yes. Revolving securitisation transactions involving the ongoing acquisition of new assets to the SPV replenishing its asset pool are quite common in Switzerland. There are no specific conditions, except conditions inherent to the transaction such as:
- compliance with eligibility criteria;
- compliance with concentration limits;
- absence of performance-trigger events; or
- absence of other early amortisation events.
While continued acquisition of assets is often seen in Swiss transactions, the transfer of assets by the SPV after the issuance of its securities is generally limited by standard non-disposal undertakings. Such non-disposal undertakings allow the SPV to dispose of assets held by it in compliance with the relevant collections’ policies only, or in compliance with, the transaction documents (eg, mandatory repurchases). Additionally, the corporate purpose of SPVs is typically limited so that the SPV may only contract within the scope of the transaction documents. Accordingly, the limited corporate purpose limits the risk that the asset SPV will dispose of its assets in breach of the non-disposal undertakings.Registration
What are the registration requirements for a securitisation?
There are no registration requirements as such, but the SPV (as any other legal entity) must be registered with the competent commercial register. Also, if the originator is a regulated entity (such as a licensed bank), further approval requirements may apply. For public transactions capital market regulations apply, which, however, do not treat securitisation transactions differently.Obligor notification
Must obligors be informed of the securitisation? How is notification effected?
Provided that the underlying agreements between the obligors and the originator allow for the free assignment and transfer of the receivable or relevant asset, the obligors do not need to be informed of the assignment and transfer and the securitisation accordingly. However, prior to notification, the obligors may validly discharge their obligations by paying to the originator (acting on an undisclosed basis as servicer), and in the event of bankruptcy of the originator such payments would form part of the bankrupt estate of the originator, until the obligors are notified. Also, a valid and unconditional assignment and transfer to the SPV requires that the SPV may notify the obligors at any point in time, even when it is the general understanding of the parties that obligors shall only be notified on occurrence of a specific notification event. To be on the safe side, it is recommended that the names and addresses of obligors are provided to the SPV. Also, the SPV must be granted the contractual right to notify obligors prior to the occurrence of a notification event.
What confidentiality and data protection measures are required to protect obligors in a securitisation? Is waiver of confidentiality possible?
Generally, a waiver of confidentiality and data protection is valid under Swiss law, even though the special requirements of the Swiss Data Protection Act and other relevant legislation must be followed.
Special considerations must apply if the originator is subject to special confidentiality obligations, such as Swiss banking secrecy. Even though a waiver is generally valid, some originators apply a more severe standard as a matter of policy by using data trustee structures in particular, where information would otherwise be transferred abroad.Credit rating agencies
Are there any rules regulating the relationship between credit rating agencies and issuers? What factors do ratings agencies focus on when rating securitised issuances?
In Switzerland, the relationship between rating agencies and issuer is generally governed by the underlying engagement. It appears that the focus of rating agencies is not really different from the focus they apply in other jurisdictions. Accordingly, rating agencies focus on the performance of the underlying assets, such as default ratios, delinquency ratios and the underlying security. Another focus of rating agencies is generally the solvency of the servicer and the ability of the servicer to service the portfolio for the SPV (including due diligence on systems and processes). Undoubtedly, the focus may shift depending on the underlying asset. In addition, rating agencies focus on legal structure and any legal pitfalls, such as the true sale analysis in true sale transactions and the bankruptcy-remoteness of the SPV.Directors’ and officers’ duties
What are the chief duties of directors and officers of SPVs? Must they be independent of the originator and owner of the SPV?
The board members (or directors) of the AG or the directors of a Swiss GmbH are ultimately responsible for the overall management and supervision of the company, a responsibility that cannot be withdrawn from and for which each individual director is ultimately liable according to article 754 et seq of the Swiss Code of Obligations.
This duty includes:
- the overall direction of the company and issuing the necessary directives;
- determining the organisational structure of the company;
- appointing and dismissing the persons entrusted with management and representation, and determining the method of signature;
- ultimate supervision of the persons entrusted with company management;
- organisation of accounting, financial control and financial planning, to the extent that the latter is necessary for management of the company;
- drawing up the annual report and the remuneration report;
- preparing for the general meeting and executing its decisions; and
- notifying the judiciary should the company become over-indebted.
More generally, pursuant to Swiss corporate law, directors have the duty to act in the company’s best interest. The best interest of a company is measured, inter alia, against a company’s business purpose, which, in the context of a securitisation transaction, is typically limited to the entering into and the performance of its obligations under the transaction documents. Any action outside of that scope might expose a director to liability. These duties are owed to the company. Directors may be held liable not only towards the company but also towards shareholders and creditors of the company for any damage caused by an intentional or negligent breach of duties. Negligence covers all forms of negligence, including simple negligence in complying with a director’s duties.
There is no Swiss legislation suggesting that directors need to be independent, but it should be noted that the duty of care is always owed to the company, rather than to the shareholder or the originator.
Also, as mentioned above, it is generally required of rating agencies and investors that at least one board member is independent from the originator. Further independence requirements may be imposed, depending on the target accounting structure.
Finally, if a transaction must receive a specific accounting treatment (eg, off-balance sheet treatment), further requirements as to the independency of directors and officers might apply.Risk exposure
Are there regulations requiring originators and arrangers to retain some exposure to risk in a securitisation?
There are no risk retention rules in Switzerland. In particular, article 6(1) of the European Union regulation 2017/2402 related to simple, transparent and standardised securitisation has not been adopted by Switzerland and transposed into Swiss law.
However, for the purposes of not negatively affecting distribution, a number of transactions impose covenants on the originator to retain, on an ongoing basis, a material net economic interest in the transaction in an amount equal to at least 5 per cent (or a higher percentage as may be required from time to time in accordance with the applicable EU risk retention rules).
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13 January 2021