Trends, developments and prospects
What is the general state of the securitisation market in your jurisdiction, including current trends, notable recent developments and future prospects?
The Netherlands has a traditionally strong residential mortgage loan securitisation market, although it is less strong than it was before the global financial crisis. In 2017 both the issue volume and the outstanding amount of securitisations reached their lowest levels since the global financial crisis with a value of €49.7 billion. The following factors have driven the decrease of securitisations:
- For investors, securitisations are treated more strictly than covered bonds when it comes to regulatory capital.
- Capital markets offer favourable financing conditions, including various central bank financing programmes and relatively low financing costs payable for other funding transactions, such as covered bonds.
- The issuance of covered bonds may lead to a more diversified financing mix.
- Pension funds and insurance companies have started to fund mortgage loans themselves. These parties have sufficient means to finance mortgage loans and hold them on their balance sheets; therefore, they have no need to securitise them.
There are few frequent bank issuers in the Dutch market and there are more deals being done by non-bank lenders. This is partly due to the fact that most bank issuers have established a covered bond programme, which allows for repeat issuances under a single programme against low costs.
After the global financial crisis, Dutch securitisation issuers established the Dutch Securitisation Association (DSA). This organisation aims to promote Dutch securitisations and has successfully focused on the standardisation of reporting in the context of, and offering circulars for, Dutch residential mortgage loan securitisations. Many Dutch issuers opt to use the reporting templates developed by the DSA.
Although most public transactions are backed by residential mortgage loans, other loan types are entering the market, including:
- the securitisation of consumer loan receivables;
- buy-to-let mortgage receivables; and
- commercial mortgage loan receivables.
In addition, trade receivables remain a popular asset class for private transactions and for transactions that are financed by banks using their own balance sheet.
The EU Securitisation Regulation (2017/2402 published in the Official Journal on 28 December 2017) provides a general framework for securitisation and creates a specific framework for simple, transparent and standardised (STS) securitisation (amending the Undertaking for Collective Investment in Transferable Securities Directive (2009/65/EC), the Solvency II Directive (2009/138/EC), the Alternative Investment Fund Managers Directive (2011/61/EU), EU Regulation 1060/2009 and EU Regulation 648/2012).
This regulation seeks to harmonise the rules for securitisations within the European Union and creates a framework for STS securitisations. The STS regulation will apply from 1 January 2019, but currently large parts of the secondary (Level 2) legislation have not yet been published. The STS regulation should alleviate the capital requirements for securitisations.
What primary and secondary legislation applies to securitisation in your jurisdiction?
The Netherlands does not have a specific securitisation regime. There are several laws and regulations that are relevant for securitisation transactions.
The Dutch Civil Code covers all areas of private law, including topics that are relevant for securitisations (eg, the ownership and transfer of assets, security rights and mandatory contract law).
The Financial Supervision Act governs the supervision of the financial sector and relates to:
- the licence requirements for financial institutions;
- the supervision of the financial sector and the powers vested in financial regulators; and
- the issuing and trading of securities.
Delegated acts provide further regulation.
The following legislation is also relevant:
- the Dutch Bankruptcy Act;
- the EU General Data Protection Regulation (GDPR), which is directly applicable in the Netherlands;
- the Act on the Implementation of the GDPR;
- tax legislation; and
- legislation preventing money laundering and the financing of terrorism.
Which authorities regulate securitisation in your jurisdiction and what is the extent of their powers?
The Dutch Central Bank (DNB) is the supervisory authority for the integrity of banks and insurers and aims to ensure financial stability by supervising the financial health of financial enterprises.
The Dutch Authority for the Financial Markets (AFM) is the supervisory authority for the conduct of business in the financial markets. The AFM supervises the conduct of financial enterprises and approves the contents of the prospectuses for public securitisation.
Both the AFM’s and DNB’s powers are laid out in the Dutch Financial Supervision Act and the relevant implementing decrees. The AFM and DNB also publish policies and guidelines to provide guidance to market participants.
Originators and assets
Which entities are typically the originators in securitisation transactions in your jurisdiction? Are there any restrictions on entities that can serve as originators?
There are no restrictions on the entities that can be originators in securitisation transactions in the Netherlands.
Typical originators are financial institutions (eg, banks, mortgage lenders, car lease companies and lenders that are active via mortgage loan platforms). Banks and other originators that lend to consumers must meet licensing requirements, unless an exception or exemption applies.
Typically, originators are incorporated as private companies with limited liability or as public limited liability companies.
For the purpose of EU risk retention requirements, the definition of ‘originator’ is broader than solely the factual originator of a receivable.
Which types of asset are typically securitised? Are there any restrictions on securitisable assets?
The following assets are typically securitised:
- residential mortgage loan receivables;
- commercial mortgage loan receivables;
- buy-to-let mortgage loan receivables;
- car lease receivables;
- consumer loan receivables;
- trade receivables; and
- small and medium-sized enterprise loan receivables.
Residential mortgage loan receivables, car lease receivables, trade receivables and consumer loan receivables are the most common asset classes for securitisation transactions in the Dutch market.
There are no restrictions on securitisable assets, although receivables must be assignable in order to be part of a securitisation transaction as these assets must be transferred by the originator to the special purpose vehicle. Receivables that result from a loan contract are generally assignable, unless assignment is excluded by an agreement between the originator and the debtor.
The Dutch legislature is proposing to abolish such assignment bans. If this proposal becomes formal legislation, the number of assets available for securitisation purposes will increase.
What structures are typically used to securitise assets in your jurisdiction? Are there any restrictions on which structures may be used?
As there is no formal securitisation legislation in the Netherlands, there are no restrictions on which structures may be used.
The most common structure is to set up a Dutch orphan special purpose vehicle (SPV) with the sole shareholder being a foundation. Both the SPV and the foundation shareholder will appoint a corporate service provider as managing director. Receivables can be ringfenced by transferring them to the SPV, often using a so-called ‘undisclosed assignment’.
The SPV will then issue notes under a trust agreement or trust deed. The SPV will create security rights in favour of a security trustee (also in the form of a foundation) that will hold the security rights for the benefit of all creditors of the SPV, including the noteholders.
Master trust structures and issuers with various compartments have also been used for Dutch securitisation transactions, although they are less common than standalone structures.
Are foreign securitisation structures commonly used? What rules, restrictions and practical considerations apply to their use (if any)?
Foreign securitisation structures are allowed and sometimes used, although a Dutch SPV is the default option in most transactions where a Dutch originator and Dutch law-governed receivables are involved. There are no legal restrictions under Dutch law preventing the use of foreign securitisation structures and the same legislation applies as to a Dutch securitisation vehicle. Foreign laws may also apply to these structures.
Currently, Dutch courts recognise, and give effect to, the transfer of receivables under non-Dutch law by a Dutch originator.
For various reasons – including the favourable Dutch tax regime – non-Dutch originators often use Dutch SPVs for their securitisation regimes.
What formal and procedural requirements govern the establishment of securitisation structures?
There are limited specific formal or procedural requirements to establish a securitisation SPV. In general, the rules of Dutch corporate law (mainly Book 2 of the Dutch Civil Code) apply when establishing a securitisation structure.
A securitisation SPV is usually established as a private company with limited liability for the sole purpose of the securitisation and the articles of association should reflect this in the objects clause. The involvement of a Dutch civil law notary is required to incorporate a private company with limited liability and any amendments to its articles of association. In addition, the SPV must be registered with the Dutch Chamber of Commerce.
The SPV’s shareholder is usually a foundation with an independent corporate service provider being the shareholder’s sole managing director to create a standalone or orphan structure.
If the SPV is located in the Netherlands and the receivables arise from loans granted to Dutch consumers, the SPV must have a licence. An exemption is available for securitisation vehicles that have delegated the servicing of such loans to a licensed loan servicer.
Transfer methods and procedures
How are assets transferred from the originator to the securitisation structure and what formal and procedural requirements must be met in order to perfect the transfer?
A receivable must be transferable in order to be transferred. The transfer must occur on the basis of a valid title (eg, a sales agreement) and the seller must have the power to dispose of such a receivable. In addition, the formalities for an assignment must be met.
An assignment can be made by means of:
- a simple deed and notification to the relevant debtor (disclosed assignment);
- a simple deed and registration thereof with the Dutch Tax Authorities in Rotterdam; or
- a deed in notarial form executed in front of a Dutch civil law notary.
In the first two instances above, no notification of the relevant debtor is required (ie, an undisclosed assignment).
Under Dutch law, future receivables are also capable of being assigned, provided that the receivable arises directly from a legal relationship that exists at the time that the future receivable is assigned. The assignment is effective once the receivable comes into existence as it is only at this time that the assignor has the power to dispose of such a receivable. Consequently, if the assignor goes bankrupt – and therefore loses the power to dispose of its assets – before the assignment of the future receivable has become effective, the receivable remains in the bankrupt estate of the assignor.
In the case of car lease receivables, the relevant vehicles are also transferred to the special purpose vehicle (SPV) by way of transfer of ownership.
Obligor notification and data protection
Must obligors be notified of the transfer of assets to the securitisation structure? If so, what rules and procedures apply? What data protection requirements apply regarding obligors’ personal data?
An assignment of receivables need not be notified as an undisclosed assignment requires either a simple deed and registration with the Dutch Tax Authorities or a deed in notarial form executed in front of a Dutch civil law notary. However, the transfer of a receivable is effective against the relevant debtor only after notice thereof to that debtor. This means that before notification, a debtor can validly pay and be discharged of its payment obligations only if it makes a payment to the assignor (ie, the originator).
In a securitisation transaction, the relevant debtors are not usually notified until the occurrence of an assignment notification event. Before such an event, the originator undertakes to transfer the collections on a regular (eg, monthly) basis to the SPV. The assignment notification events are set out in the transaction documentation and usually include:
- insolvency events;
- rating downgrades; and
- payment defaults.
The EU General Data Protection Regulation (GDPR) and the Dutch GDPR Implementation Bill apply to the processing of personal data. Therefore, the general principles and requirements of the GDPR apply.
Further, some specific requirements may apply pursuant to the GDPR Implementation Bill. These requirements predominantly relate to restrictions on the use of social security numbers.
For the securitisation of residential mortgage loans, personal data typically remains with the originator and the servicer (or even an independent third party, such as a civil law notary) of the mortgage loans and is shared with the SPV and security trustee only in the case of an assignment notification event.
Anti-money laundering provisions
What anti-money laundering provisions apply to asset transfers to securitisation structures?
In principle, the securitisation structure will not be subject to anti-money laundering rules. Other parties involved in the transaction (eg, lawyers, auditors, trust offices and banks) must comply with their own anti-money laundering rules. The Anti-money Laundering and Anti-terrorist Financing Act is the primary legislation on anti-money laundering in the Netherlands.
Choice of law provisions
What rules and restrictions (if any) apply to the choice of law governing the asset transfer?
Choice of law governing the transfer of assets Pursuant to Dutch international private law, in an international context, the transfer of receivables is governed by the law governing the agreement by which the receivables are transferred. For example, a Dutch originator can elect to transfer its Dutch law receivables pursuant to a French law-governed purchase agreement. French law would then govern the transfer of the receivables, including the relevant formalities.
For moveable assets, the law of the country in which the asset was located at the time of transfer will govern such transfer (the lex rei sitae principle).
Choice of law governing contractual obligations Choice of law clauses for the governing law of contractual obligations are generally recognised and can be enforced on the basis of the EU Rome I Regulation (593/2008) on the law applicable to contractual obligations.
Available types of security
What types of security are available and commonly used for securitisation transactions in your jurisdiction? What formal and procedural requirements must be met in order to perfect the security?
All material assets of the securitisation special purpose vehicle (SPV) usually serve as collateral for its payment obligations. These assets include securitised receivables, bank accounts and rights under the transaction documents. The security is created by a (disclosed or undisclosed) right of pledge over the assets of the SPV.
Typically, security rights are vested in favour of the security trustee for the benefit of the noteholders securing the obligations of the SPV under a parallel debt agreement. The noteholders cannot enforce their rights directly, but usually have the right to direct the security trustee to take certain enforcement actions.
A disclosed right of pledge is typically created over bank accounts and the rights under the transaction documents. This requires a simple deed between the pledgor and the pledgee and notification of the right of pledge to the relevant counterparty. The securitised receivables are typically pledged by way of an undisclosed right of pledge, which requires a simple deed between the pledgor and the pledgee and registration thereof with the Dutch Tax Authorities or a deed in notarial form executed in front of a Dutch civil law notary.
How are security interests enforced?
The rights of pledge over the assets of the securitisation SPV (ie, receivables, bank accounts and rights under the transaction documents) can be enforced in case of a default by the SPV in its payment obligations. The security trustee will notify the relevant debtors in case of an undisclosed right of pledge or will terminate the SPV’s authority to collect payments in case of a disclosed right of pledge and will then be authorised to collect payments in respect of the receivables.
In case of a default by the SPV, either the receivables can be sold or the collections can be used to satisfy the secured obligations.
Issuance of securities
What rules, documentary requirements and procedures govern the public listing of asset-backed securities in your jurisdiction? How common is public listing? Are foreign exchanges preferred?
Both public and private issuances are common in the Dutch market. For a public issuance, a prospectus is required, which is approved by the Dutch regulator, the Authority for the Financial Markets or another regulator if the prospectus is passported. A listing must be applied for with Euronext Amsterdam NV, which means that the Euronext rules must also be followed. Foreign exchanges, such as the Luxembourg and Irish stock exchange, are not preferable but are regularly used. Opting for a foreign exchange is often due to cost and timing considerations.
What rules, documentary requirements and procedures govern the private issuance of asset-backed securities in your jurisdiction? How common is private issuance?
Private issuances are conducted in the Netherlands on a regular basis. The choice for either a public or a private issuance often depends on the potential investor base and possible timing constraints.
There are no specific rules or regulations governing private transactions provided that they are offered to qualified investors as defined in the Dutch Financial Supervision Act with a denomination of at least €100,000. The documentation is similar to that of a securitisation transaction.
Credit enhancement and rating
Credit enhancement methods
What credit enhancement methods are commonly used in your jurisdiction? Do any restrictions apply? Are there any special issues specific to your jurisdiction in relation to credit enhancement?
There are no specific legal restrictions or specific legal issues in respect of credit enhancement.
Several methods can be used to enhance the creditworthiness of a special purpose vehicle (SPV), such as:
- tranching and subordination – the debt securities issued are divided into tranches, where each tranche has its own ranking in the payment waterfall;
- overcollaterisation – the value of the assets transferred by the originator to the SPV is higher than the amount of notes issued by the SPV;
- excess spread – the interest payments on the assets transferred to the SPV exceed the payment obligations of the SPV under the notes and transaction documents; and
- reserves – part of the note proceeds (eg, the subordinated notes or a subordinated loan) can be retained by the SPV and used as a reserve. This reserve can be utilised to mitigate losses where necessary.
In the context of trade receivables securitisations, the originator often ensures that a credit insurance is in place for (part of) the principal amount of its receivables, including the receivables that are transferred to the SPV.
Credit rating agencies
What factors do credit rating agencies consider when assessing asset-backed securities?
Although each credit rating agency has its own risk models, methodology and procedures, in general the credit rating assigned by credit rating agencies reflects the issuer’s ability to meet its payment obligations of interest and principal in a timely manner, pursuant to the terms and conditions of the notes.
Typically, the relevant credit rating agency assesses whether the losses for investors are expected on the basis of the historical payment performance of the assets.
Are the activities of credit rating agencies and their relationships with issuers subject to any regulations or restrictions?
Credit rating agencies are regulated by the EU Credit Rating Agencies Regulation (462/2013 amending EU Regulation 1060/2009). The regulation also provides certain requirements for issuers of structured finance instruments (eg, securitisation SPVs).
If a prospectus is prepared in connection with the issue of a securitisation transaction and reference is made to a credit rating, the SPV must ensure that the prospectus also includes clear and prominent information stating whether such credit ratings are issued by a credit rating agency established in the European Union and whether such an agency is registered under the Credit Rating Agencies Regulation. In addition, for a structured finance instrument, the SPV is required to solicit a credit rating of at least two credit rating agencies, which must not belong to the same group of companies or be otherwise connected. One of these credit rating agencies should have a market share of no more than 10%, otherwise the SPV must document that its credit rating agencies hold a larger market share.
Additional requirements as to the contractual relationship between the SPV and the credit rating agency apply in case of a re-securitisation.
What tax liabilities arise for originators in relation to securitisation transactions and how can these liabilities be mitigated?
In general, the transfer of assets by a Dutch originator to a (Dutch or non-Dutch) securitisation special purpose vehicle (SPV) does not trigger any Dutch taxation. An exception may apply if the fair market value or the purchase price of the transferred assets exceeds the tax book value of those assets.
Generally, no value-added tax (VAT) is payable in connection with the transfer of an asset by the originator to an SPV.
If the originator performs services to the SPV in respect of the transferred assets, the income derived by performing these services may be subject to VAT.
Generally, no transfer taxes, stamp duties or other similar duties or taxes are payable in respect of the transfer of assets by an originator to an SPV.
What tax liabilities arise for securitisation structures and how can these liabilities be mitigated?
A Dutch securitisation SPV is subject to corporate income tax (which for 2018 is 20%-25%). The taxable base of the SPV should be at arm’s length and is generally low.
No VAT is payable for any payments of interest and principal made by a Dutch securitisation SPV.
What tax liabilities arise for investors in asset-backed securities and how can these liabilities be mitigated?
Corporate and individual investors that are tax resident in the Netherlands are generally liable to taxation on their income, including interest income (and capital gains if any), derived from their investment in asset-backed securities. Generally, non-Dutch investors are not liable for tax in respect of their investment in asset-backed securities.
Exceptions may apply if:
- the investor has a permanent establishment in the Netherlands to which the asset-backed securities are attributable;
- the investor is entitled to a share in the profits of an enterprise that is effectively managed in the Netherlands to which the asset-backed securities are attributable;
- the asset-backed securities are issued by a Dutch issuer and the investors have a substantial interest in that Dutch issuer; or
- the investor is an individual who derives benefits from the asset-backed securities that are taxable as benefits from miscellaneous activities in the Netherlands.
No withholding tax is payable if the asset-backed securities are issued by a non-Dutch issuer or if the asset-backed securities are issued by a Dutch issuer and do not factually function as equity within the meaning of Article 10(1) of the Netherlands Corporate Income Tax Act 1969. This is the case if the asset-backed securities have a maturity of less than 50 years or if the interest rate is not linked to the proceeds generated by collateral assets. Generally, no transfer taxes, stamp duties or other similar duties or taxes are payable in respect of the investment in Dutch asset-backed securities.
True sale and recharacterisation
How is a ‘true sale’ determined in the event of the originator’s insolvency? In what circumstances will a bankruptcy court recharacterise an asset transfer as a secured loan?
Under Dutch law, only a transfer of assets for security purposes or a transfer without the intent to actually transfer ownership will be null and void. This is a theoretical risk as transfers should be documented in such a way that the securitisation special purpose vehicle (SPV) will become the unconditional owner.
There is no concept of recharacterisation in Dutch law. As such, provided that the relevant transfer formalities have been complied with, a transfer of assets will in principle be upheld in the case of a Dutch law bankruptcy, other than in case of fraudulent conveyance and certain other third-party defences. In a bankruptcy, the bankruptcy trustee can, on behalf of the bankrupt estate, request the nullification of the transfer if the transfer was detrimental to the rights of other creditors and certain other requirements are met. Typically, in a well-documented and well-structured transaction, this risk is remote.
Contractual repurchase options of, or obligations for, the seller of the assets do not affect the true sale analysis, provided that the repurchase takes place at arm’s length.
External counsel usually provide legal opinions confirming the legal title transfer of the assets to the SPV, subject to customary assumptions and qualification.
How can commingling risk in the context of the originator’s insolvency be mitigated?
In most cases, receivables are assigned to the SPV using a so-called ‘undisclosed assignment’, which allows the debtors to validly discharge their debt by making payments to the originator. The originator then undertakes to forward the collections to the SPV. If the originator goes bankrupt before it has forwarded such amounts, they will remain in the insolvency estate of the originator.
The transaction documentation typically provides for assignment notification events, which allow the SPV (or the security trustee) to notify debtors of the relevant receivables. After notification, the debtors can no longer validly discharge their debt by paying the originator.
To prevent any collection amounts being trapped in the bankrupt estate of the originator, a collection foundation can be used. The collection foundation is a foundation that is established for the sole purpose of collecting payments and distributing these to the relevant beneficiaries (ie, the relevant SPV or the originator). As payments are made to the collection foundation instead of the originator, a bankruptcy of the originator will cause no commingling risk.
If a collection foundation structure cannot be used, an alternative option is to pledge the collection account that is held by the originator. However, this option is not available if the originator is bound by negative pledge clauses in its other financing arrangements.
How can securitisation structures be made bankruptcy remote?
The following measures are typically used to ensure that an SPV is as bankruptcy remote as possible:
- The contract parties must sign up to limited recourse clauses, which ensures that the amount of the claims of the creditors against the SPV are limited to the assets of the SPV.
- The contract parties of the SPV agree not to initiate bankruptcy proceedings in so-called ‘no-petition clauses’.
- Parties that are not bound by limited recourse and no-petition clauses (eg, the Dutch tax authorities) rank senior in the waterfall.
- the SPV is a newly incorporated entity and will not have any historic liabilities. The SPVs activities will be limited via the objects clause in its articles of association.
- The SPV is structured as a standalone entity; its shares are held by a separate foundation and not by the originator.
- A corporate service provider will be appointed as managing director of the SPV and the foundation shareholder. The managing director will undertake in the management agreement not to engage in activities that are unrelated to the transaction concerned.
- The SPV will not have any employees.
Dutch insolvency law does not recognise the concept of substantive consolidation.