The common view that securitization cannot be structured without a true sale is being turned on its head by an innovating European market, according to Standard & Poor’s. In a new report, the ratings agency explained how transactions have been emerging without true sales, relying instead on various local law security interests. ‘The traditional view in the market is that structured finance transactions cannot be put together without a true sale of the assets that are being securitized,’ said Ian Bell, senior European legal counsel. ‘This view is derived from market participants’ familiarity with the U.S. structured finance market, the template on which all other markets were built.’ Bell explained that the necessity of a true sale in the U.S. is dictated by Chapter 11 of the U.S. Bankruptcy Code: ‘Without a true sale of the assets, upon an originator’s insolvency these assets would fall within the bankruptcy estate and not be available to pay investors in the asset-backed notes.’ ‘This is not what securitization is about,’ Bell argued. ‘At the heart of securitization is the removal of the seller’s corporate risk so that noteholders can measure their risk solely by reference to the relevant assets. Since only a true sale can achieve that result in the U.S., it became the hallmark of all securitizations.’
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