Securitisation 2020 A practical cross-border insight to securitisation work 13th Edition Featuring contributions from: Allen & Overy LLP Macfarlanes LLP Roschier Advokatbyrå AB Brodies LLP Maples Group Schulte Roth & Zabel LLP Cuatrecasas Mayer Brown Shearman & Sterling LLP Freshfields Bruckhaus McMillan LLP Sidley Austin LLP Deringer LLP Nishimura & Asahi VdA GSK Stockmann Oon & Bazul LLP Walder Wyss Ltd. King & Wood Mallesons Orrick, Herrington & Sutcliffe (Europe) Waselius & Wist Loyens & Loeff Luxembourg S.à r.l. LLP ISBN 978-1-83918-046-0 ISSN 1745-7661 Published by 59 Tanner Street London SE1 3PL United Kingdom Securitisation 2020 +44 207 367 0720 [email protected] th www.iclg.com 13 Edition Group Publisher Rory Smith Editor Jane Simmons Senior Editor Contributing Editor: Sam Friend Rupert Wall Head of Production Suzie Levy Sidley Austin LLP Chief Media Officer Fraser Allan CEO Jason Byles Printed by Stephens & George Print Group Cover image www.istockphoto.com ©2020 Global Legal Group Limited. All rights reserved. Unauthorised reproduction by any means, Strategic Partners digital or analogue, in whole or in part, is strictly forbidden. PEFC Certified Disclaimer This product is from sustainably managed forests and controlled sources This publication is for general information purposes only. It does not purport to provide comprehen- PEFC/16-33-254 www.pefc.org sive full legal or other advice. Global Legal Group Ltd. and the contributors accept no responsibility for losses that may arise from reliance upon information contained in this publication. This publication is intended to give an indication of legal issues upon which you may need advice. Full legal advice should be taken from a qualified professional when dealing with specific situations. Cross-Border Trade Receivables Securitisation – Opportunity Awaits Merryn Craske, François-Régis Gonon, Carol Hitselberger, Andreas Lange, Ariel Ramos, Linda E. Boss, Jeffrey R. Favitta, Mayer Brown Cory R. Miggins & Jessica Solis Trade receivables securitisation is one of the primary means through ■ whether payment by an Obligor to the applicable Originator which middle market and investment grade companies alike are (rather than the SPV) will discharge such Obligor’s payment able to obtain more efficient and cost-effective financing, manage obligation; their balance sheets and diversify their financing sources. While it ■ whether the Financing Parties or the SPV can enforce may not be as simple or straightforward as a trade receivables secu- against and sue an Obligor directly for its failure to pay the ritisation in a single jurisdiction, the opportunity and potential for applicable Receivable; and growth for a cross-border trade receivables securitisation can often ■ whether a third-party creditor or insolvency trustee may outweigh the time and cost of structuring it. While the inclusion of assert its interest in or rights over the applicable Receivables. each jurisdiction will mean that the parties will have to take addi- Determining the answers to these questions and the impact tional considerations into account, by partnering with experienced those answers have on the structure and implementation of a deal counsel and local counsel, the parties can be flexible and crea- trade receivables securitisation are critical both for protecting tive in order to achieve their operational and financial goals. the Financing Parties’ rights in the Receivables and for achieving This article presents an overview of key considerations when the Originators’ balance sheet and liquidity management objec- structuring a cross-border trade receivables securitisation, tives. Once all applicable local laws have been determined, including insight from some of our leading partners in England, further analysis should be performed in each relevant jurisdic- France, Germany, Mexico and the United States. tion, with the assistance of local counsel, to ensure that all juris- diction-specific legal formalities are satisfied. Structural Considerations The Rome I Regulation Choice of law In securitisation transactions with Originators and/or Obligors A typical trade receivables securitisation involves the sale by located in European Union (“EU”) countries (other than an originator or originators (each, an “Originator”) of trade Denmark) and/or the United Kingdom (the “UK”), the Rome I receivables (the “Receivables”) owed by certain account Regulation (Regulation (EC) No 593/2008 of 17 June 2008 on debtors (each, an “Obligor”) to a newly-formed, insolvency-re- the law applicable to contractual obligations) (“Rome I”) will mote, special purpose entity (the “SPV”), with the purchase of be relevant. Rome I provides that the relationship between the the Receivables by the SPV being financed by one or more banks assignor (i.e., the applicable Originator) and the assignee (i.e., or conduits (the “Financing Parties”). the SPV) is governed by the law of the contract between them A cross-border trade receivables transaction will require an (i.e., the Sale Agreement) (Article 14(1)). For matters concerning in-depth review of all relevant jurisdictions, including (a) the the assignability of any Receivable, the relationship between the location of the SPV, (b) the location of the Originators and the SPV and the Financing Parties, as assignees, and the Obligor, governing law of the sale agreement between each Originator enforceability against the Obligor and whether the Obligor’s and the SPV (each, a “Sale Agreement”), (c) the location of the payment obligations have been discharged, it is necessary to look Obligors, (d) the governing law of the Receivables, and (e) the loca- at the governing law of the applicable Receivable (i.e., the law of tion of any bank accounts, particularly where a security interest the Underlying Contract). will be granted in favour of the SPV or the Financing Parties in In addition, there is a draft regulation (Proposal for a regu- those bank accounts. Each additional jurisdiction will raise local lation of the European Parliament and of the Council on the law and choice of law questions, which will need to be analysed and law applicable to the third-party effects of assignments of considered in light of the objectives which the Originators and the claims) aimed at addressing the effectiveness of the transfer of Financing Parties wish to achieve in structuring the securitisation. Receivables as against third parties. This regulation is yet to Key questions include: be finalised but the effect of it could make this legal analysis ■ which law will apply to determine: more complicated. This is because, while the parties are gener- (a) whether there has been a “true sale” of the Receivables ally free under Rome I to choose the law of a contract, such as a between each Originator and the SPV; and Sale Agreement, the new regulation could make it necessary to (b) whether a Receivable is permitted to be assigned by comply with the law where the Originator has its habitual resi- the applicable Originator to the SPV in the event of dence in assessing whether a valid transfer has been achieved as a restriction on, or prohibition of, assignment in the against third parties (including a liquidator or other insolvency underlying contract between such Originator and the official). Obligor (the “Underlying Contract”); Securitisation 2020 Mayer Brown The Securitisation Regulation Diligence in relation to the Receivables and restrictions on assignment In transactions where the relevant entities are located in the EU or the UK, it will also be important to consider the require- It is common for the Financing Parties or the Originator (in ments of Regulation (EU) 2017/2402 (the “Securitisation consultation with the relevant legal counsel) to review and Regulation”) and the related technical standards and guidance. perform diligence with respect to the Underlying Contracts. The Securitisation Regulation sets out certain obligations with One important purpose of such diligence is to determine the respect to originators, sponsors, securitisation special purpose extent to which there are any restrictions or prohibitions on entities and institutional investors (each as defined therein) with assignment in the Underlying Contracts. respect to securitisations (as defined therein) entered into from 1 In our experience, most jurisdictions outside the US will enforce January 2019 or which are no longer grandfathered. These obli- a restriction or prohibition on assignment which is included in the gations include the following: Underlying Contract. If there is such a restriction with respect ■ due diligence and ongoing monitoring obligations for to certain Receivables and the Originator desires to sell those institutional investors; Receivables to the SPV, in most cases the Obligor’s consent will ■ risk retention requirements; and be required. However, the Originator typically does not want ■ transparency requirements including the requirement to request that Obligors consent to the sale of the Originator’s to provide certain information using specified reporting Receivables for fear of disruption of the business relationship templates. (or providing leverage to Obligors for other concessions). The The Securitisation Regulation also includes a set of require- Originators and the Financing Parties will need to determine ments which will need to be met in order for a securitisation whether certain Obligors should be excluded from the securitisa- to be considered “simple, transparent and standardised” or tion and consider