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Introduction to the legal criteria for rating
securitisation / mortgage bonds
Romanian law perspective


Moody's 2nd Annua...
Legal criteria for rating securitisation / mortgage bonds
Introduction

Legal Issues are analysed in rating any securitisa...
Legal criteria for rating securitisation / mortgage bonds
Romanian legal framework for securitisation and mortgage bonds

...
Legal criteria for rating securitisation / mortgage bonds
Romanian securitisation framework: key features
                ...
Legal criteria for rating securitisation / mortgage bonds
Romanian mortgage bonds framework: key features

               ...
Legal criteria for rating securitisation / mortgage bonds
Preliminary legal considerations in rating securitisation /
mort...
Legal criteria for rating securitisation / mortgage bonds
Preliminary legal considerations in rating securitisation

-   T...
Legal criteria for rating securitisation / mortgage bonds
Preliminary considerations in rating mortgage bonds



-   Is th...
Legal criteria for rating securitisation / mortgage bonds
Legal Issues Frequently Encountered in New Markets:
Borrower/Loa...
Legal criteria for rating securitisation / mortgage bonds
Legal Issues Frequently Encountered in New Markets:
Transfer of ...
Legal criteria for rating securitisation / mortgage bonds
Legal Issues Frequently Encountered in New Markets:
SPV

-   Is ...
Legal criteria for rating securitisation / mortgage bonds
Legal Issues Frequently Encountered in New Markets:
Bankruptcy

...
Legal criteria for rating securitisation / mortgage bonds
Legal Issues Frequently Encountered in New Markets:
Taxation

- ...
Legal criteria for rating securitisation / mortgage bonds
Concluding comments


   How well does Romanian legal framework ...
Securitisation Services : Financial Advisory
in Romania                Legal assistance
                          Tax assi...
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Legal Criteria For Rating securitisation instruments & Covered Bonds

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Legal criteria for rating securitisation instruments and covered bonds. Presentation at Moody's Annual CEE conference 2008

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Transcript of "Legal Criteria For Rating securitisation instruments & Covered Bonds"

  1. 1. Introduction to the legal criteria for rating securitisation / mortgage bonds Romanian law perspective Moody's 2nd Annual CEE Credit Risk Conference 12 June 2008, Bucharest Andrei Burz Pinzaru Senior Manager Reff&Associates is the correspondent law firm of Deloitte Romania
  2. 2. Legal criteria for rating securitisation / mortgage bonds Introduction Legal Issues are analysed in rating any securitisation / mortgage bonds transaction, but are particularly significant in new markets Reasons - the local laws and the nature of the legal system are less well known - legal precedents may be limited or less applicable to securitisations / mortgage bonds Reff&Associates is the correspondent law firm of Deloitte Romania
  3. 3. Legal criteria for rating securitisation / mortgage bonds Romanian legal framework for securitisation and mortgage bonds Amendments to the Mortgage Lending Act (Law No. 34/2006, published on 3 March 2006, amending Law 190/1999) The main legal The Securitisation Law (Law 31/2006, published on 13 March 2006) framework for securitisation and mortgage bonds in The Mortgage Bonds Law (Law 32/2006, published on 23 March 2006) Romania •CNVM/NBR Regulation 12/2006 on the authorisation of agents •NBR Norm19/2006 on eligible assets for “refreshing” MB cover pools •CNVM Regulation11/2006 on securitisation •CNVM&NBR Regulation 21/2006 on the credit risk in securitisation Reff&Associates is the correspondent law firm of Deloitte Romania
  4. 4. Legal criteria for rating securitisation / mortgage bonds Romanian securitisation framework: key features A financial operation whereby an investment vehicle purchases pecuniary claims (all Definition of accessory rights included), (“assets”), groups them in pools and issues securities backed securitisation under by the respective assets’ corresponding cash-flows (“asset-backed securities”, in Romanian law Romanian “instrumente financiare securitizate”). Pay through and pass-through structures available: SPV set up as securitisation company SPV set up as civil partnership (no legal personality) Key legal aspects SPV’s unchallenged ownership of asset pool – no insolvency claw-back SPV’s bankruptcy remoteness: limited purpose, operational and management independency, SPV insolvency protection for investors regarding the asset Investors’ interest in the collateral (limited statute of limitation of challenge of collateral) Key regulatory aspects Entities involved in securitisation need authorisation by Securities Commission and Central Bank Agent (trustee) SPV administrator (corporate servicer) – minimum EUR125,000 equity Portfolio management company (payment agent) Reff&Associates is the correspondent law firm of Deloitte Romania
  5. 5. Legal criteria for rating securitisation / mortgage bonds Romanian mortgage bonds framework: key features Securities issued by banks, under CNVM’s supervision, based on a offering circular Definition of approved by CNVM, for the purpose of refinancing the mortgage lending activity of the mortgage bonds issuer, based on a cover pool of mortgage loans over which the investors are granted a under Romanian law first rank security interest and a preference right against any other creditors of the issuer. Mortgage bonds: financial instruments accessible only to banks Key legal aspects Detailed regulation of Assets eligible for the cover pool and refreshment of the cover pool (replacement of assets) Protection of the investors’ interest in the cover pool Isolation of the cover pool. Bankruptcy remoteness Key regulatory aspects Entities involved in securitisation need authorisation by Securities Commission and Central Bank Agent (trustee) – mandatory for mortgage bonds (as opposed to securitisation) Portfolio management company (payment agent) Reff&Associates is the correspondent law firm of Deloitte Romania
  6. 6. Legal criteria for rating securitisation / mortgage bonds Preliminary legal considerations in rating securitisation / mortgage bonds Does the necessary infrastructure exist to accommodate regulatory concerns? - It is important to ascertain whether or not the necessary infrastructure exists, to accommodate structural, accounting, and other regulatory concerns. - The extent to which relevant originators (e.g., banks, consumer lenders) are regulated influences normally the credit quality of their products as well as their motivation to securitise / issue mortgage bonds. - Data/consumer protection rights - Foreclosure - Regulations of the rated instruments - The nature of the accounting and tax treatment of the transaction. Reff&Associates is the correspondent law firm of Deloitte Romania
  7. 7. Legal criteria for rating securitisation / mortgage bonds Preliminary legal considerations in rating securitisation - The structure of the special purpose vehicle (SPV) that issues the securities - Type of asset backed securities (debt or equity) - Impact of local laws on issues such as bankruptcy, transfer of assets to SPV or foreclosure? - Could the ‘true sale’ of the assets to the SPV be challenged in the event of the originator’s insolvency (‘claw back’)? - The noteholders’ security interest in the assets, data/consumer protection rights, foreclosure, etc. Reff&Associates is the correspondent law firm of Deloitte Romania
  8. 8. Legal criteria for rating securitisation / mortgage bonds Preliminary considerations in rating mortgage bonds - Is there a special legal framework for mortgage bonds? - How is protected the bondholders’ security interest in the cover pool? - Impact of bankruptcy of the originator on the cover pool and mortgage bonds investors Reff&Associates is the correspondent law firm of Deloitte Romania
  9. 9. Legal criteria for rating securitisation / mortgage bonds Legal Issues Frequently Encountered in New Markets: Borrower/Loan Related - Enforceability of loan documents, including the underlying security - Average time to enforce security and average recovery costs - Enforceability of prepayment penalties - Consumer protection laws –limitations on the data that banks/lenders can share with investors / other third parties? Reff&Associates is the correspondent law firm of Deloitte Romania
  10. 10. Legal criteria for rating securitisation / mortgage bonds Legal Issues Frequently Encountered in New Markets: Transfer of receivables - Is a notification to borrowers needed? If so, what are the implications if no notice is given? - Are there any other requirements in order to perfect the transfer of the receivables? - Is there any registration required in connection with certain assets (e.g., mortgage loans)? - Is there a stamp tax or transfer tax? - True sale – What is the possibility that a court would re-characterise the transfer as a secured loan in case of the seller’s bankruptcy? Is there relevant case law? - Claw back – How far back in time can a court go to cancel the transfer, in the case of a fraudulent conveyance or a preference? Reff&Associates is the correspondent law firm of Deloitte Romania
  11. 11. Legal criteria for rating securitisation / mortgage bonds Legal Issues Frequently Encountered in New Markets: SPV - Is there a specific law for its structure and conditions? - Is there a minimum capital required? Restricted actions? Minimum number of officers? etc. - Is the SPV and/or its assets legally segregated from its affiliates and/or creditors? - Is it eligible to file for, or be placed in, bankruptcy? If so, how will the underlying assets be treated in its bankruptcy? Reff&Associates is the correspondent law firm of Deloitte Romania
  12. 12. Legal criteria for rating securitisation / mortgage bonds Legal Issues Frequently Encountered in New Markets: Bankruptcy - Specifics of the bankruptcy law - The typical time frame of the proceedings - How are secured creditors treated differently from unsecured creditors? - Typical priority order of claims - Who has the capacity to decide on the plan of liquidation / re-organisation? Reff&Associates is the correspondent law firm of Deloitte Romania
  13. 13. Legal criteria for rating securitisation / mortgage bonds Legal Issues Frequently Encountered in New Markets: Taxation - Taxation on the revenues of the SPV - Stamp or transfer tax - with respect to the transfer of receivables - Value added tax (VAT) - Withholding tax – applied to the payments made by the SPV to investors - Other taxes under securities laws Reff&Associates is the correspondent law firm of Deloitte Romania
  14. 14. Legal criteria for rating securitisation / mortgage bonds Concluding comments How well does Romanian legal framework “serve” the rating of securitisation / mortgage bonds? Local versus cross – border transactions Reff&Associates is the correspondent law firm of Deloitte Romania
  15. 15. Securitisation Services : Financial Advisory in Romania Legal assistance Tax assistance Contacts Tax Services Legal and regulatory Rodica Segarceanu Andrei Burz Pinzaru Partner Senior Manager Direct:+40 21 207 53 64 Direct:+40 21 207 52 05 Fax: +40 21 319 51 03 Fax: +40 21 319 51 02 Mobile:+40 744 328 381 Mobile:+40 728 328 928 Email: rsegarceanu@deloittece.com Email: aburzpinzaru@deloittece.com www.deloitte.com/ro/legal 4-8 Nicolae Titulescu Road, East Entrance, 3rd floor, 4-8 Nicolae Titulescu Road, Sector 1, Bucharest, 011141 East Entrance, 3rd floor, Romania Sector 1, Bucharest, 011141 Romania Reff&Associates is the correspondent law firm of Deloitte Romania
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