Security

Types

What types of collateral/security are typically granted to investors in a securitisation in your jurisdiction?

Pursuant to the AMBS legislation, the assets of a fund or MFI are segregated from the assets of their founder, servicer and originators, and cannot be disposed of for any purpose whatsoever, even if the management or audit of their founder, servicer or the originators are transferred to public authorities. They cannot be subject to attachment, made subject to interim injunction or included in the bankruptcy estate even for the collection of public receivables until the AMBSs are redeemed in full. Neither can assets of the fund nor MFI be pledged or otherwise designated as collateral except for the purpose of taking loans, entering into derivative transactions or similar transactions on behalf of the fund or MFI. Furthermore, pursuant to the AMBS legislation, the founder or MFI, or legal entities that are permitted to be founders, can partially or fully guarantee the payments. Payments can also be partially or fully insured by insurance companies.

There are certain requirements related to security. For example, where the asset is auto loan or mortgage, the related registry records should show that the pledgee is the fund or MFI based on the transfer from the originator to the fund.

For offshore securitisation transactions, DPRs have been the most common asset used to date as per our foregoing explanations. Therefore, the ownership of the SPV is secured with acknowledgements executed by the correspondent banks of the originator as well as the pledge arrangements. Accordingly, the correspondent banks transfer the collections directly to the SPV’s account, which is pledged (in the name of the indenture trustee) for the benefit of the investors.

Perfection

How is the interest of investors in a securitisation in the underlying security perfected in your jurisdiction?

See question 25.

Enforcement

How do investors enforce their security interest?

For the purpose of AMBS legislation, since the fund or MFI owns the assets to be used exclusively to repay the notes, the investors can always make recourse to such assets in case any default occurs on the notes. However, certain regulatory protection exists. Accordingly, in the event that the issuer suffers from repayment difficulties as a consequence of the failure of its board to duly perform its duties under the Communiqué, the CMB may require the board to be changed. If the repayment difficulties continue even after such change, the CMB may determine transfer of the issuer to another bank, MFI or intermediary institution. However, if the founder has provided a sufficient guarantee, the founder can continue repaying in accordance with the repayment terms. To sum up, investors can make recourse to the founder for the repayments that cannot be met from the proceeds of the portfolio assets.

Commingling risk

Is commingling risk relating to collections an issue in your jurisdiction?

As per the AMBS legislation, it is clearly indicated that assets of the fund or the MFI are separate from assets of the originator, the founder or the MFI. Also, the collections from the portfolio are assets of the fund or MFI and shall be transferred to a separate bank account opened in the name of the fund or MFI, promptly after collection. Therefore, in theory, there is no commingling risk since the collections directly pass to the fund or MFI.

For offshore securitisations, since DPRs have been heavily used as asset types that do not comingle in the assets of the originator by nature, comingling risk has not been a major concern. For other asset types, it is of importance to ensure separation or actual transfer of the assets to SPV with sufficient control in practice in order to avoid any comingling risk or challenging arguments of assignment or sale since there is not clear legislative protection for offshore securitisations.