When looking at transaction statistics, it immediately becomes
apparent that securitization is not a widely used tool for
obtaining debt financing and/or reducing the regulatory capital
burden in Austria.
According to statistics published in April 2004 by the Austrian
National Bank (Oesterreichische Nationalbank - OeNB) and the
Financial Markets Supervisory Authority
(Finanzmarktaufsichtsbehörde - FMA) (Leitfaden zum Kreditrisiko
- Best Practice im Risikomanagement von Verbriefungen;
available at www.oenb.at) only four term transactions have been
completed in the past two years:
- St Anton CDO I, a true sale securitization by UNIQA
Alternative Investments GmbH, a subsidiary of the UNIQA group
of insurances (€400 million)
- Edelweiss Autofunding, a true sale securitization of car
leasing receivables by EBV Leasing, a subsidiary of Erste Bank
der oesterreichischen Sparkassen AG (€200 million)
- Promise Austria 2002, a synthetic securitization of loans
to small and medium-sized enterprises by Bank Austria
Creditanstalt AG (€1 billion)
- Aspen Funding I, a true sale securitization by UNIQA
Alternative Investments GmbH (€200 million).
Out of these, Schönherr has advised on three transactions with
an aggregate volume of €1.6 billion ($1.9 billion).
These statistics do, however, not take into account the numerous
(commercial paper) conduit transactions involving Austrian assets
that have been completed during the past years (starting in the
mid-1990s). These transactions involve various types of asset
classes, including leasing, trade and mail-order receivables.
The reasons why no more term transactions are originated in
Austria are numerous, the most important being the relatively small
number of (potential) originators that are able to generate a
sizeable pool of assets (leaving aside bank assets) and are in need
of funding. Another reason may be the perceived legal (and tax)
uncertainties that lead to increased funding costs for Austrian
originators.
Challenges
Contrary to synthetic transactions, in which the most
challenging issue is to structure the deal so as to obtain
regulatory capital relief, true sale transactions concerning
Austrian assets involve a variety of legal challenges to be
overcome.
Transfer of assets and collateral
When it comes to
transferring/assigning (future) receivables governed by Austrian
law the following peculiarities need to be considered:
- Whereas the obligation to transfer/assign
(Verpflichtungsgeschäft) the receivables to the special
purpose vehicle (SPV) can be governed by the law chosen between
the parties, the actual transfer/assignment
(Verfügungsgeschäft) of the receivables is determined by
reference to the law governing the assigned receivables. It
follows from this that receivables governed by Austrian law
mandatorily require a transfer/assignment (clause) governed by
Austrian law. In practice, split law clauses in receivables
purchase agreements that are governed by foreign law are quite
common.
- Contrary to certain other jurisdictions (for example,
Germany) a contractually agreed upon prohibition to assign a
receivable prevents the effective transfer/assignment of this
receivable. Obtaining the counterparties' consent will not be
feasible in most transactions. Trust structures, in which the
originator declares to hold the receivables in trust for the
SPV, which give the SPV a right of preferential satisfaction in
the originator's insolvency, are used to overcome this
obstacle.
- Particular attention has to be paid to the
transfer/assignment of rights to the collateral securing the
transferred/assigned receivables. The steps required to
create/perfect a security interest over the collateral will
have to be replicated to achieve an effective
transfer/assignment of rights to the collateral from the
originator to the SPV. The steps that need to be taken range
from a bookmark in the originator's books and accounts, or the
notification of the originator's counterparties (the debtors
under the assigned receivables and the holders of the leased
vehicles, for example), to re-registration of mortgages with
the land register in the case of residential and commercial
mortgage-backed deals. The Supreme Court has held that the
effective transfer of a claim secured by a mortgage over real
estate requires the re-registration of the mortgage with the
land register. The above mentioned trust structure or a
transfer of the receivables by way of subrogation
(Einlösung) may be a way to overcome these issues and in
particular to avoid the costs involved in the re-registration
of mortgages over real estate (see below).
Set-off risk
Another issue at the core of the rating
agencies' attention is the set-off risk associated with the
assignment of (future) receivables. Under Austrian law, the
originator's debtor may set off any counterclaim it has against the
originator that arises until the debtor is notified of the
transfer/assignment. With respect to future receivables, the debtor
may, irrespective of such notification, set off any counterclaim
that arises until the future receivable comes into existence.
Servicing
Under Austrian law a (servicing)
agreement, under which the SPV appoints the originator to collect
the receivables and to realize the security interests will not be
effective in the event the receivables/security interests need to
be enforced in front of (Austrian) courts. The Supreme Court
considers the right to enforce a claim (and to realize a security
interest) to be inseparable from the right to the
receivable/security interest. Accordingly, either the SPV has to
sue the debtor (in which case a non-EU SPV may be required to post
security for litigation costs) or the transferred/assigned
receivable, once disputed, is re-assigned for collection to the
originator. Again, trust structures may be used to overcome this
impediment.
Stamp duties
A true peculiarity of Austrian law is
the imposition of stamp duties on facility agreements and
assignment agreements. If not drafted (and also handled) carefully,
the transfer/assignment of receivables may give rise to a stamp
duty of 0.8% of the consideration paid for the receivables. If a
true sale is re-characterized (for stamp duty purposes) as a
secured facility, the facility may be subject to stamp duties (0.8%
for non revolving facilities and revolving facilities with a term
of up to five years and 1.5% for revolving facilities with a term
in excess of five years). In addition, a duty of 1.2% would be
levied upon the re-registration of a mortgage over real estate (see
above). Structures commonly used to mitigate stamp duty exposure
involve the written offer/tacit acceptance of the receivables
purchase agreement, trust structures and the transfer of
receivables by way of subrogation (Einlösung). In any event
it needs to be borne in mind that not only the receivables purchase
agreement may trigger stamp duty, but also substitute recordings of
this agreement, in other transaction documents or in a notice of
assignment to the originator's debtors (if such a notice is not
drafted carefully).
Transfer of data
Not specific to Austria but worth
mentioning are the limitations imposed on the transfer of data from
the originator to the SPV/(substitute) servicer. The processing of
encoded data that only indirectly relate to the debtor's identity
and which would not allow the SPV/(substitute) servicer, to obtain
(by lawful means) the debtors identity (indirekt
personenbezogene Daten) is permissible. However, the processing
of these data, once they have been decoded, is only permissible in
case the interests of the SPV outweigh the interests of the debtors
on keeping their personal data secret. In addition, the Austrian
Banking Act (Bankwesengesetz - BWG) provides for a (rather
strict) banking secrecy. However, whereas the Supreme Court has
ruled that other professions that are subject to statutory
obligations of confidentiality (for example, attorneys and
auditors) must not transfer/assign their receivables because of
their professional duties of secrecy, it has also held that banking
secrecy does not contravene a transfer/assignment of bank
receivables. In practice, structures similar to the data trustee
structures commonly used in international securitization
transactions are widely accepted in Austria.
Regulation
Finally, it is worth mentioning that no
unqualified opinion can be given under the laws of Austria, whether
the purchase of receivables by the SPV constitutes banking business
or not. According to the BWG, the purchase of receivables on a
commercial basis (factoring) constitutes a banking business,
subject to licensing/passporting requirements. The Austrian
regulator (Finanzmarktaufsichtsbehörde - FMA) yet has to voice a
clear opinion, whether a purchase of receivables by the (foreign or
Austrian) SPV constitutes banking business. In practice, the risk
that the SPV is considered conducting banking business in Austria
is small, also because in most transactions the SPV is not located
in Austria and the transaction documents are signed outside Austria
for stamp duty reasons (see above).
The draft Securitization Act
In 2003 the Austrian Securitization Forum (ASF) mandated a small
group of law firms active in this field of law (including
Schönherr) to draft a piece of legislation dealing with, among
other things, the issues mentioned above. As well as the legal
issues outlined above, the draft Austrian Securitization Act
contains a section tailored to create a bankruptcy remote Austrian
SPV (to date an Austrian SPV has been used only in the 2001 Blue
Danube transaction). Despite the continuing lobbying efforts of the
Austrian Securitization Forum and the Austrian credit institutions,
the draft Austrian Securitization Act has not been submitted to
parliament yet. Accordingly, transactions continue to be structured
under the existing legal framework.
Other structures
Whereas the following structures closely resemble securitization
in many ways, they do not provide for a segregation of credit risk
from the originator providing the assets to secure the notes/bonds.
In this respect they are similar to whole-business
securitization.
Covered bonds
Based on a law as old as 1905,
Austrian credit institutions may issue bonds/notes (recourse
obligations of the credit institution) that are secured by a
ring-fenced pool of assets of the credit institution, so-called
covered bonds (fundierte Bankschuldverschreibungen). While
these instruments are an efficient tool to obtain funding, the
issuing credit institution will not obtain regulatory capital
relief because the assets remain with the originator.
Only gilt-edged assets (for example, Austrian treasury bonds and
mortgage bonds (Pfandbriefe)) and receivables guaranteed by
the Republic of Austria, its Federal States or other public law
entities having the authority to levy taxes (for example,
municipalities) or secured by a registered mortgage over real
estate may serve as collateral for covered bonds. The holder of
covered bonds is granted a preferential right over the collateral
as a security for principal, interest and certain costs.
The pool of assets is safeguarded by a trustee
(Regierungskommissär) appointed by the Federal Minister of
Finance, who among other things is obliged to notify the courts if
execution was levied against assets serving as collateral for the
covered bonds. Assets serving as collateral for the covered bonds
may only be disposed of with the trustee's consent, which may only
be granted if the trustee is of the opinion that such disposal does
not adversely affect the bonds' cover/collateral.
Set-off risk is reduced by a statutory provision, stipulating
that a debtor of assets serving as collateral may only set-off
those claims against the issuing credit institution that were
already in existence at the time it was notified that the assets
should serve as collateral and that have been notified to the
trustee.
Mortgage bonds
The issuance of mortgage bonds is
regulated by the Act on Mortgage Banks (Hypothekenbankgesetz -
HypBG) and the Mortgage Bond Act (Pfandbriefgesetz -
PfandbriefG).
Similar to covered bonds (see above) mortgage bonds do not
effectively separate the credit risk from the issuing credit
institution (and are thus full recourse obligations of the issuer)
but provide for a preferential right of satisfaction of the bond
holders in the issuer's insolvency.
Unlike covered bonds, which can be issued by any Austrian credit
institution, the issuance of mortgage bonds requires a special
(banking) license.
The asset pool for mortgage bonds (Hypothekenpfandbriefe)
may consist of loans secured by mortgages over real estate located
in Austria, in member states of the European Economic Area (EEA) or
in Switzerland, provided that foreign laws provide protection for
the holders of mortgage bonds which is equivalent to the protection
afforded by Austrian law. Only assets with a loan to value ratio
not exceeding 60% may be included in the collateral pool.
Public mortgage bonds (öffentliche Pfandbriefe or
Kommunalschuldverschreibungen) need to be secured on loans
granted to Austrian public law entities, to Switzerland or to any
member state of the EEA other than Austria, as well as to their
regional governments or to public law entities for which the
competent authority has set a solvency ratio of no more than 20% or
by securities issued or guaranteed by such entities.
A trustee (Treuhänder) appointed by the Federal Minister
of Finance is in charge of controlling and verifying the provisions
as to prescribed minimum cover and registration of the mortgage
bond in the mortgage register kept by the issuing institution. An
annotation (Kautionsband) with the competent land register
is a precondition for inclusion of the underlying asset in this
mortgage register.
Additional safeguards in Austrian law to protect the holders of
mortgage bonds include mandatory hedging against currency
fluctuations and prescribed minimum interests yields on the
underlying assets (as compared to interest payable on the mortgage
bonds).
The Mortgage Bond Agency (Pfandbriefstelle der Österreichischen
Lan-des-Hypothekenbanken), a public law credit institution
(öffentlich-rechtliches Kreditinstitut) serves as joint
issuing vehicle for the eight Austrian state mortgage banks
(Landes-Hypothekenbanken). It may issue mortgage bonds and
public mortgage bonds secured on the assets generated by its
members. All eight state mortgage banks are jointly and severally
liable for the obligations of the Mortgage Bond Agency.
Irrespective of this joint and several liability, the holders of
bonds issued by the Mortgage Bond Agency have a preferential claim
on the asset pool of the respective state mortgage bank only.
Summary
Securitization is not yet a widely used financing tool in
Austria. With the Basel II Accord approaching, Austrian corporates
will be forced to access new sources of funding, while Austrian
banks will need to free regulatory capital by either synthetic or
true-sale transactions. Despite the fact that many (potential)
originators are hesitant, pending enactment of the Austrian
Securitization Act, several interesting transactions are expected
to be launched in 2004.