What is “Securitisation”?

Securitisation is the process of transforming one asset or a group of assets into tradable assets or “securities”.

Often it involves a financial transaction in which various types of underlying securities, such as debt obligations, private equity assets, or real estate investments which generate receivable income, are pooled and thereafter securities representing interests in the pool are issued and are available to investors, thus creating liquidity. Securities backed by general types of receivable income are called asset-backed securities (ABS).

How does the Securitisation work?

A pool of assets (financial or not) is transferred from an originator to a segregated cell of the securitisation company. The Securitisation Cell Company finances the acquisition of these assets by the issuance of securities, whose interest and principal payments depend on and are backed by the assets transferred.

What types of assets can be securitised?

There are no restrictions on the type of securitisation assets. By definition, the Act includes any asset, whether existing or future, whether movable or immovable, and whether tangible or intangible, wheter generating cash flows or not . Securities issued by Arkadia may be listed on a regulated market, whether in Malta or outside.

Securitisation Cell Companies (“SCC”)

An SCC is a single legal entity that can establish one or more segregated cells for the purpose of entering into a securitisation transaction.

The above regulations allow for the launch of multiple securitisation transactions without any risk of contamination between different set of creditors/investors, by allowing for the segregation of different assets and risk instruments within a single securitisation vehicle. Maltese law states that the assets and liabilities attributable to a particular cell constitute a separate patrimony of the securitisation cell company. Maltese securitisation vehicles can be used to structure various forms of securitisation transactions, including synthetic risk transfer securitisation, insurance-linked securities transactions as catastrophe bond, real estate securitisation transactions, private equity, trade and credit card receivables, lease and payments for aircraft and ships, insurance risk and royalties from intellectual properties and other types of financial and non-financial assets. An SCC can have multiple originators provided that there is only one originator of securitisation assets for each cell. Each cell can have a different base currency. The SCC Regulations expressly provide that each cell constitutes a separate patrimony of the SCC and that the assets attributable to a cell will only be available to the creditors of that cell and not to the creditors of any other cell or non-cellular creditors. Any proceedings against a cell (and any provisional administrator or liquidator appointed in respect of the SCC) will, in accordance with the SCC Regulations, be required to respect the status of each cell as a segregated patrimony that is separated from the assets and liabilities of the other cells and the SCC itself.

Authorisation and Applicability

An SCC must only notify to the Malta Financial Services Authority (“MFSA”) that it intends to enter into one or more securitisation transaction prior to commencing business in respect to any particular cell. MFSA authorisation (as opposed to notification) may be required when the SCC intends to issue securities to the public on a continuous basis. The provisions of the Act are not applicable to a Reinsurance Special Purpose Vehicle established and regulated by any regulations made under the Insurance Business Act.

Cell’s management

Securitisation vehicles may delegate the management responsibility for its day-to-day administration or of the assets or risks thereof, including the collection of any claims, to any third party, including the originator. When such administration has been delegated to the originator, the latter shall not require any licence from or other recognition by the competent authority under any applicable law.

Securitisation Act (the “Act”)

In 2013 Malta amended and improved its legislation to regulate securitisation and securitisation vehicles. The Act makes Malta a jurisdiction of excellence for securitisation transactions and combined with the Regulations, Malta offers a unique legal framework for the establishment of Securitisation Cell Companies that afford the highest level of investor protection. The Act provides solutions and greater certainty of outcome for many of the legal challenges that investors and credit rating agencies are typically concerned with, including true sale, bankruptcy remoteness and the privileges of securitisation creditors over the vehicle’s assets, as well as neutral tax treatment .