Question ID
2023_6911
Legal act
Regulation (EU) No 2017/2402 (SecReg)
Topic
Provisions applicable to all securitisations
Article
6
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
Not applicable
Article/Paragraph
Not applicable
Type of submitter
Credit institution
Subject matter
Risk retention
Question

In a situation where an entity:

  1. is not considering being itself at any time the legal owner of the securitised receivables, but
  2. has made its own decision to invest in the receivables by procuring the purchase thereof by an SSPE directly from the seller, based on its own audit of the portfolio, and has negotiated the terms and conditions of the sale and purchase independently and directly with the seller,
  3. is contractually and economically irrevocably committed to:
    1. procure the purchase of these receivables by an SSPE directly from the seller, not later than an agreed closing date, under a sale and purchase agreement entered into between such entity and the seller, failing which it would be liable for contractual damages to the seller, in an amount significant enough to evidence that it is in its economic interest to avoid such liability by performing its obligation,
    2. arrange and appoint any service providers, for the purposes of the structuring and syndication of a financing of the purchase price in the form of a securitisation of these receivables not later than the closing date, where:
      1. it would have a right of active control over the servicing, either by itself or by an appointed third-party servicer, of the securitised assets, that would be determinant for the performance of the portfolio,
      2. it would bear at least the first loss risk of the securitised portfolio, in an amount that exceeds the expected loss of the portfolio, by subscribing the first losses tranche,
      3. it would expect to receive a remuneration that would be directly dependent on the performance of the portfolio,
      4. it would be committed to fund 100% of defaulting or ineligible receivables,

can this entity be considered as limb(b) originator under Regulation (EU) No 2017/2402 and as such, act as risk retention holder under Article 6(3)(d)?

Would the same analysis apply with respect to future receivables that the same entity would contractually irrevocably commit, pursuant to the same sale and purchase agreement, to purchase after the closing date under the same terms and conditions, during a certain period of time, provided that they comply with the same eligibility criteria (both individually and on an aggregate basis) and up to an agreed aggregate amount, by having them assigned by the seller to the same SSPE?

Background on the question

Originator is defined under Article 2(3)(b) Regulation (EU) No 2017/2402 as an entity which purchases a third party's exposures on its own account and then securitises them.

The solution described above in details is not unusual in situations where the intention is to finance the purchase price of a whole existing portfolio through a securitisation transaction, so that it would be ineffective, whether from an economic, legal or operational perspective, to have it assigned first to the limb(b) originator then onto the SSPE. The background is therefore different from Q&A 2013_265 as the entity has entered into a sale and purchase agreement with the seller, pursuant to which it is contractually committed to procure the purchase of identified existing assets by a SSPE directly from one or several identified Sellers, through a securitisation transaction that it has actively participated to establish with an aim at funding the pre-agreed purchase price, and in which it is committed to subscribe the junior tranche which covers the first losses and derives the excess spread (ie not in the context of a CLO warehouse and not only involved in the selection of the exposures and the setting of criteria); amongst others, the entity has been involved in the selection of the transactions parties and the structuring of the transaction, and has been acting independently in the commercial negotiations with the Seller of the terms of the assets’ acquisition by the SSPE.

Submission date
Status
Question under review
Answer prepared by
Answer prepared by the European Commission because it is a matter of interpretation of Union law.