26.01.2021 Securitisation of proceeds arising from the ownership of real estate
This short article represents an attempt to shed some light and to bring together all the individual information currently available on the “securitisations of real estate”. Its purpose is to deal with the following issues: legislation and structure of vehicle companies; form and tax regime of Special Purpose Vehicles (SPVs) for property securitisations incorporation – securitisation – finalisation of the sale of a real estate SPV 130.
REGULATIONS AND STRUCTURE OF THE VEHICLE COMPANY
As regards the securitisation of proceeds deriving from the ownership of real estate, the reference legislation is Law 130/1999, also known as the Securitisation Law, and the subsequent amendments made by the 2019 Budget Law first and then by the Growth Decree. Lastly, the new 2021 Budget Law in paragraphs 214 and 215 contributed some clarifications, albeit indirectly.
Of particular interest is the following:
Paragraph 1088 of the Budget Law which introduced paragraph b-bis) to Article 7 and which provides for the application of the Securitisation Law to the securitisation transactions of proceeds deriving from ownership of real estate
The intervention of the Growth Decree which provided for the possibility of direct purchase of real estate by an SPV in order to securitise the related proceeds by introducing Article 7.2.
The regulatory text relating to real estate securitisations, as amended by the Budget Law and the Growth Decree, appears as follows:
Art. 7 “Other transactions”
- The provisions of this law apply, insofar as they are compatible: (…)
b-bis) to securitisation transactions of proceeds deriving from ownership, by the company pursuant to Article 7.2, of real estate, registered movable property and real or personal rights concerning said assets”.
Art. 7.2 “Securitisation of real estate and registered movable property” (which establishes which companies can be appointed to carry out this type of securitisation)
- The companies that carry out the transactions referred to in Article 7, paragraph 1, letter b-bis), CANNOT carry out securitisation transactions of a DIFFERENT NATURE to those indicated in Article 7, paragraph 1, letter b-bis). Regarding the obligations towards the holders of the securities, as well as any other creditor in the context of each securitisation transaction, the separate assets are exclusively liable for them (…). The provisions of Article 7.1, paragraph 8, first sentence, apply to these transactions.
- For each transaction, the assets and rights intended to satisfy the rights of the securities’ holders and of the counterparties of the derivative contracts to hedge the risks inherent in the receivables and securities sold are identified. The assets and rights, the sums deriving from the same assets, as well as any rights acquired in the context of the securitisation transaction by the companies referred to in paragraph 1 constitute, in all respects, separate assets from those of the companies themselves and from those relating to other transactions. No actions are allowed on separate assets by any creditor other than the holders of the securities issued by the companies or by the grantors of the loans they have obtained or by the counterparties of the derivative contracts for the purpose of hedging the risks inherent in the receivables and securities sold.
Article 7.1, paragraph 8, first sentence, provides that (…) the securitisation company identifies an entity with adequate competence and with the necessary qualifications or authorisations in accordance with the applicable legal provisions, to whom to confer tasks of management or administration and power of representation, in the interest of the security holders. (the second sentence follows).
The only doubt that could initially arise was on the rule’s formulation which does not fully clarify whether the structure envisaged by the legislator was that of a Special Purpose Vehicle (SPV) that securitises the proceeds deriving from the assets and rights acquired by a supporting Re.O.Co, or the structure of a so-called real estate securitisation SPV which itself acquires the assets the proceeds of which it will securitise.
As mentioned, the new 2021 Budget Law, paragraphs 214 and 215, also intervened on Law 130 on Securitisations. In particular, it intervened on Article 1, paragraph 1, letter b) (Scope of application and definitions) and on Article 7.1, paragraph 4 (Securitisation of impaired loans by banks and financial intermediaries).
This intervention can be broken down into three specific points:
- SPVs can finance the purchase of receivables through loans from third parties in place of the issue of securities for which the lenders become recipients exclusively of the sums generated by the transferred receivables. Any reference to “securities” must be understood as “loans” (Article 1, paragraph 1, letter b));
- The sums received from the debtor(s) as well as all the sums received to satisfy the assigned receivables are exclusively intended to meet the rights incorporated in the securities issued to finance the purchase of the receivables (Article 1, paragraph 1, letter b) );
- Within the framework of support vehicle companies (Re.O.Co), it has been established that they can purchase the assets and legal relationships that have the function of guaranteeing the receivables subject to securitisation not only in the usual forms (sale) but also through other corporate transactions (divisions and aggregations) (Article 7.1, paragraph 4 ).
The above does not directly concern the case of “transfers of properties”, but it makes sense in a general view of Law 130 and the interpretation of the legislator’s intentions.
Upon examination of the legislation, as represented above,
- having regard to Article 7, paragraph 1, letter b-bis) that provides for the application of Law 130/99 to securitisation transactions of the proceeds deriving from ownership, by the companies referred to in Article 7.2, of real estate;
- having regard to the introduction of Article 7.2 on real estate securitisations and the provision of companies (SPV 130) that carry out such operations also from an asset and liability point of view;
- having regard to Article 7.1, paragraph 8, first sentence, thatprovides thatreal estate securitisation companies identify an entity with adequate competence and with the necessary qualifications or authorisations to whom to confer management or administration tasks and power of representation (Sub-servicer);
- considering that the 2021 Budget Law provided an authentic interpretation of Article 7.1, paragraph 4, clarifying the activities of the Re.O.Cos, with the possibility for these companies to acquire the assets that have the function of guaranteeing the loans subject to securitisation not only in the usual forms (sale) but also through corporate deeds;
- considering, lastly, that the real estate securitisation transaction carried out by Arya SPV (first securitisation of properties of which we are aware to date) took place through an SPV (“Arya” as specified above) specifically set up and having the code ATECO 2007 – Activity 68.1 – Buying and selling of real estate on own assets.This transaction was followed by a further one by Zenith and Phoenix through the company “Manzoni SPV”, with the code ATECO 2007 – Activity 68.20.01 – Rent and management of owned or leased properties;
it is clear that the combined provisions of Articles 7, paragraph 1, letter b-bis), and Art. 7.2, in light of the above considerations, refer to the possibility of concluding real estate securitisation transactions put in place by SPV 130, expressly set up and having as their sole object “securitisation transactions of the proceeds deriving from the ownership of real estate” with the help of competent companies providing management/administration/representation (Sub-servicers).
FORM AND TAX REGIME OF SPECIAL PURPOSE VEHICLE FOR REAL ESTATE SECURITISATIONS
The new provision outlines the main characteristics of the SPVs within these transactions (“Real Estate Securitisation SPV”), in line with the provisions for SPVs and Support SPVs, providing for the following:
- Real Estate Securitisation SPVs cannot carry out securitisation transactions of a nature other than real estate securitisation and registered movable property;
- for each transaction, the assets and rights intended to satisfy the rights of the holders of the securities and of the counterparties of the derivative contracts are identified to hedge the risks inherent in the receivables and securities sold;
III. the ordinary segregation of assets envisaged by law is also extended to this type of securitisation, establishing that:
- the identified assets and rights, the sums deriving in any way from said assets, as well as any other rights acquired in the context of the securitisation transaction by the Real Estate Securitisation SPV constitute assets separate in all respects from those of the Real Estate Securitisation SPVs themselves and from those relating to other transactions;
- no actions by any creditor other than Noteholders are permitted on each separate equity
- or by the granters of the loans obtained from the Real Estate Securitisation SPVs or by the counterparties of the derivative contracts for the purpose of hedging the risks inherent in the receivables and securities sold;
- for the obligations towards Noteholders (as well as any other creditor in the context of each securitisation transaction) the separate assets are exclusively liable with the assets and rights referred to in the previous sub-paragraph (ii);
- the Real Estate Securitisation SPV must identify an entity with adequate competence and with the necessary qualifications or authorisations in compliance with the applicable legal provisions, to whom to confer management or administration tasks and power of representation in the interest of the Noteholders;
- The guarantee for the reimbursement of the securities themselves will therefore be the cash flow from the sale of the properties;
- concerning the tax regime applicable to the Real Estate Securitisation SPVs, the Growth Decree, introducing the Real Estate Securitisation SPVs, expressly established that the assets and rights intended to satisfy the creditors of the securities’ holders and the sums deriving from them constitute separate assets for all purposes. This clarification also makes it possible to consider even the proceeds realised in constant securitisation by the Real Estate Securitisation SPVs exempt from IRES (corporate income tax) and IRAP (regional tax on productive activities), with tax applying only to any positive result at the end of the period.
INCORPORATION – SECURITISATION – FINALISATION OF THE TRANSFER OF A REAL ESTATE SPV 130
1) DEED OF INCORPORATION AND ARTICLES OF ASSOCIATION
The real estate SPV 130 should be ab origine incorporated with a deed of incorporation and article of association, as a “vehicle company having as its exclusive objects the securitisation of proceeds deriving from the ownership of real estate”.
While the main company’s objects of the SPV 130 remains the execution of one or more securitisation transactions, the specific possibility for SPV 130 to purchase real estate should be added, to avoid any misunderstanding. as merely “instrumental to achieve the main company’s objects” in the SPV 130’s articles of association. Thus, the purchase of the properties by the SPV would be considered, also according to the articles of association, part of the actions connected to the achievement of the company’s objects (that of carrying out the proceeds’ securitisation), without therefore having any doubts regarding a distorted use of the SPV 130 instrument to carry out purely real estate transactions.
2) SECURITISATION, FINALISATION, TRANSFER AND IDENTIFICATION OF THE ASSETS
From a practical point of view, once the real estate SPV 130 has been incorporated, the proceeds securitisation would be structured like any other securitisation, and therefore with a “transfer block” followed by an “issue block”.
The core of these new securitisations is in the sale phase: in this case the sale’s object is both the “proceeds” (e.g., any rental fees of income-generating properties, future sale prices of the properties themselves …), and – with contextual and separate deed – the “properties” themselves.
The real estate SPV 130 would acquire the entire “proceeds/property” asset from the same (single) transferor (natural person, company, bank, intermediary, fund), owner of the entire asset. It could proceed with a single, cumulative transfer deed, or with two separate deeds, one for the transfer of the proceeds and one for the sale of the property (the latter via a notarial public deed, registered and transcribed in the real estate registers, given the nature of the property). In the absence of specific regulatory responses, it is assumed that the deed of transfer to an SPV 130 of a real estate’s ownership must follow the ordinary civil regime provided therein, i.e., be stipulated by public deed, with consequent registration of the deed of sale and payment of related taxes, as the mere publication in the Official Journal and registration in the Companies Register referred to in Article 4 of Law 130 cannot be sufficient.
With regard to the finalisation of the transfer of properties for its enforcement vis-à-vis third parties it will not be possible in this case to resort to publication in the Official Journal, as the provisions on the transcription of the title (deed of sale, transfer decree, others), as Article 2644 of the Civil Code must necessarily apply. As for the identification of assets, two concurrent formalities should be considered, namely the use, also in this case, of the publication of a notice in the Official Journal, and the indication in a specific section of the transcription note of the fact that the new owner of the right in rem in question on real estate is a securitisation company incorporated pursuant to the combined provisions of Articles 7, paragraph 1, letters b-bis) and 7.2 of Law no. 130 of 30 April 1999, and that this right and the sums deriving from it in any way are intended to satisfy the rights of the holders of the specific securities issued in the context of the related securitisation transaction and of the other creditors of the securitisation company in the context of the same securitisation transaction (Art 7.2, paragraph 2).
3) ROLE OF THE SUB-SERVICER
In the structuring and implementation phase of the real estate securitisation, again concerning the “transfer block”, the role of the sub-servicer will take on particular importance: the sub-servicer they will have to manage not only a portfolio of loans (proceeds), but also the property itself and all related issues, such as any improvements and sale to third parties.
In this case, the sub-servicer will act as sub-agent of the master servicer and of the SPV 130, and will have to carry out, in the interest of the SPV 130 owner of the property, the same management and enhancement tasks as those performed by the Re.O.Co. according to paragraph 4 of Article 7.1. (however, the latter is also the direct owner of the property as a separate company from the SPV 130).
by Maria Cristina Aromatario - Business Development Analyst at Héra Holding