By its very nature and purpose, a securitisation transaction involves a number of players whose roles are distinct but closely interdependent. Understanding who does what, and why, is fundamental to understanding the structure of these financial arrangements. Far from being a simple transaction, securitisation is a veritable ecosystem in which each player holds a share of the responsibility for ensuring the balance of the whole. To fully understand the overall mechanics of a securitisation transactionSo it's essential to start by identifying the key players and their respective roles.
The initiator or "originator": the assignor of the claims
At the origin of any securitisation transaction is the originator. This is the entity, usually a credit institution or large company, that holds the initial portfolio of receivables. These receivables can be very diverse in nature: property loans, consumer credit, or even trade receivables held on customers.
The originator's interest in selling its receivables is manifold. The primary objective is often to obtain immediate liquidity by transforming illiquid assets (receivables due in the future) into cash. This enables the company to refinance itself in order to develop new activities or grant new loans. Securitisation is also a risk management tool. By transferring receivables, the originator also transfers the risk of default by debtors to other players. Lastly, this operation can have a positive impact on its balance sheet and prudential ratios, by reducing the weight of the risky assets it holds.
The securitisation vehicle: the investment vehicle
The securitisation vehicle (SV) is the legal structure at the heart of the arrangement. Created specifically for the transaction, it is known as an "ad hoc" vehicle. Its role is to acquire the receivables transferred by the originator and, to finance this acquisition, to issue securities on the financial markets that will be subscribed by investors. The TO is therefore the pivot that transforms a portfolio of receivables into negotiable financial instruments. These structures are governed by a precise legal framework which defines their obligations and how they operate.
Under French law, the TO can take two main forms, each with its own specific features.
The securitisation mutual fund (fct): operation and administration
The securitisation mutual fund (FCT) is the historical and most widespread form. It has no legal personality. Legally, it is analysed as a co-ownership belonging to the unit holders (the investors). This lack of legal personality has one major consequence: the FCT cannot act on its own. It must be represented and administered by a management company, which acts in its name and on its behalf. It is this company that will take the decisions and ensure the smooth running of day-to-day operations.
The securitisation company (st): a corporate structure for securitisation
As an alternative to the FCT, the securitisation company (ST) is a legal entity. It takes the form of a société anonyme (SA) or a société par actions simplifiée (SAS). This form offers a structure that is more familiar to international investors. Although it is a company governed by ordinary law, it is subject to a specific regime that derogates on a number of points from the traditional rules of company law, particularly in terms of capital and governance. The aim of these changes is to give it the flexibility it needs to carry out securitisation transactions.
The portfolio management company (PMC): a pillar of asset management
Whether the securitisation vehicle is an FCT or a ST, it is managed by a portfolio management company (PMC). This is an investment services provider (ISP) approved and supervised by the Autorité des marchés financiers (AMF), a guarantee of professionalism and compliance with standards. The SGP is the real conductor of the TO.
Its remit is extensive. It sets up the fund, represents it in dealings with third parties and in any legal proceedings, and takes all management decisions in accordance with the objectives defined in the fund rules. In particular, it ensures that the financial flows received from debtors are correctly allocated to pay investors. Its role may also include supervising or directly taking charge of the recovery of securitised receivablesThis function is essential to the performance of the operation.
The custodian: guaranteeing the security of assets
The custodian is another key player, whose role is to guarantee the security of the securitisation vehicle's assets. It is generally a credit institution or an investment firm. Its role is twofold. Firstly, it safeguards the assets of the securitisation undertaking. In concrete terms, it keeps the debt assignment notes or financial instruments and ensures that they exist and are real. Secondly, it monitors the legality of decisions taken by the management company. It does not judge the appropriateness of management decisions, but checks that they comply with the law and the fund's regulations. They may be held liable if they fail to fulfil their custodial or supervisory obligations, thereby providing additional protection for investors.
Investors: financiers and risk bearers
Investors are those who purchase the securities issued by the securitisation vehicle. They provide the funds needed to acquire the receivables from the originator. In return for their investment, they receive remuneration (interest, coupons) from the financial flows generated by the receivables portfolio. These are almost exclusively institutional investors: banks, insurance companies, pension funds and other investment funds.
Securities are often structured in different categories, or "tranches", with varying levels of risk and return. The so-called "senior" tranches are the least risky and are repaid first, while the "subordinated" or "junior" tranches offer a higher yield but bear the first losses in the event of default. Investors have a right to transparent information on the characteristics of the transaction and the quality of the underlying assets, and are required by regulation to carry out due diligence before investing.
Other key players
In addition to this central core, other professionals are involved at various stages of the operation:
- The arranger : Often a corporate and investment bank, it is the architect of the deal. It structures the deal, coordinates the various players and is generally responsible for placing the securities with investors.
- Rating agencies : They assess the credit quality of the securities issued by the TO. Their rating (e.g. AAA, BB, etc.) provides investors with an independent assessment of the default risk associated with each tranche, thereby influencing their investment decision and the cost of financing.
- Lawyers: Their involvement is essential to ensure that the deal is legally secure. They draft all the contractual documentation (fund rules, issue prospectus, sale agreements) and ensure that the transaction complies with a dense and constantly evolving legal and regulatory framework.
- The debt collector ("servicer") : It is responsible for the administrative management and collection of debts from debtors. Often, this task is retained by the originator himself, who maintains the relationship with his customers. A "back-up servicer" is often appointed to take over if the lead agent fails.
The complexity of the interactions between these different players makes expert legal support essential to structure, negotiate and secure each stage of the transaction. If you are involved in a securitisation arrangement or are considering this type of financing, our law firm can help you to protect your interests.
Sources
- Monetary and Financial Code
- Commercial code
- Civil Code
EN 
FR