The traditional securitisation — the archetypal "true sale" structure — is the centre of gravity of the European framework. Every other structure is, in one way or another, defined against it.
Key points
- Receivables are sold by an originator to a securitisation special purpose entity (SSPE).
- The SSPE is bankruptcy-remote: the sold receivables are shielded from claims of the originator's other creditors.
- The SSPE funds the purchase price by issuing asset-backed securities (ABS) to investors.
- The originator typically keeps servicing the receivables under a servicing agreement.
- A security trustee holds collateral over the SSPE's assets for the benefit of the noteholders.
How the structure works
At the core of every traditional securitisation is the insolvency-remote transfer of the receivables to the SSPE. Typically the receivables are transferred by a credit institution; in the terminology of the Regulation, an entity that sells and transfers receivables to the SSPE is the originator. The SSPE's only function is to isolate the purchased receivables from the originator's estate — in particular in the event of insolvency — and to ensure that investors' claims do not compete with those of other creditors.
The SSPE pays the originator a purchase price for the receivables. It refinances that purchase price by issuing debt instruments to investors — commonly referred to as asset-backed securities (ABS). Those securities are themselves "risk positions" in the terminology of the Regulation, namely securitisation positions.
Servicing usually remains with the originator under a servicing agreement (Geschäftsbesorgungsvertrag). A security trustee obtains security interests over all assets of the SSPE for the benefit of the investors.
Typical asset classes
Virtually any form of financing can be securitised. Typical European asset classes include:
- Auto loans and auto leases — the dominant German asset class.
- Residential mortgages — an important asset class in other European markets.
- Commercial mortgage loans — CMBS transactions.
- Unsecured consumer credit and credit card receivables.
- SME loans and leasing receivables — including under ABCP programmes.
Why a traditional securitisation?
Economically, a traditional securitisation achieves three things at once:
- Liquidity — the originator receives the purchase price from the SSPE up front.
- Risk transfer — credit risk is sliced into tranches of different seniority and allocated to investors via the issued notes.
- Capital relief — subject to the significant risk transfer test, the transaction may reduce the regulatory capital required against the securitised pool.
True sale — the legal core
The Regulation requires that title to the receivables be acquired by the SSPE through a legally effective and insolvency-remote transfer. In particular, the originator may not retain a right to recall the receivables. This must be represented by the originator and confirmed by a legal opinion. The transferred exposures must meet pre-defined, clear and documented eligibility criteria — with no discretionary active portfolio management.