Securitization has taken off in most international markets, but this has not been the case in Denmark, despite it having one of the most sophisticated bond markets for retail mortgages, low levels of credit default, a relatively stable economy and no stamp duty on assignments. The failure has primarily been due to the effect of general principles of Danish law on two vital aspects of any securitization transaction.
The first is the requirement that, before an assignment of receivables can take place, notice must be given to each debtor whose receivables are being assigned. This is not an issue novel to Danish law (and is common in civil law jurisdictions) but it has had a profound effect on the Danish market. One solution that may solve this problem has been found in Germany where synthetic securitizations have been used to replace the need to identify and receive consent from debtors. However, the position in Denmark is slightly more complicated and structures used in the international markets may not necessarily work. Furthermore, the inability under Danish insolvency law to confirm bankruptcy remoteness for an SPV means that investors risk an insolvency administrator determining that no true sale had taken place. The ability for an administrator to avoid certain transactions imposes even more restraints on the replacement of assets or receivables within the portfolio. Structured financiers and lawyers have now begun adapting synthetic structures used in other countries to within the boundaries set by Danish law.
Given the potential of this market, a considerable effort is being made to find a suitable achievable alternative to deal with the issues raised above and it seems that the use of specially structured credit default products together with a Danish design synthetic structure may provide the answer.
Steen Halmind and Ian Tokley
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