HONG KONG Law and Practice Contributed by: Vincent Sum and Sylvia Leung, Mayer Brown
2. Roles and Responsibilities of the Parties 2.1 Issuers The issuer is often an SPE that is isolated from its originator and permitted to undertake a restricted business scope. The issuer acquires and holds financial assets through true sale transactions, issues asset-backed securities and provides security for the benefits of the noteholders and the note trustee. The issuer is obligated to comply with both financial and non-financial obligations under the terms and conditions of the notes – eg, compliance with applicable laws and regulations and reporting/ notification/disclosure requirements on matters related to its business and financials that may have a material adverse impact on its ability to pay interests and repay principals to the note - holders at maturity of the notes. 2.2 Sponsors A sponsor initiates and organises the securitisa - tion process. The sponsor’s main responsibilities include selecting and packaging the assets for securitisation, ensuring the legal validity of the transfer or sale of these assets to the SPE, and sometimes underwriting or purchasing a portion of the issued securities by the SPE. A sponsor is often the original owner of the securitised assets, and is thus often referred to as an “originator”. In practice, various types of financial institutions can act as sponsors in a securitisation transac - tion, including banks and investment funds, as well as trading companies and exporters. 2.3 Originators/Sellers The originator is the initiator of the securitisation transaction, with the aim of achieving its com - mercial and financing objectives. For example, in the case of loan receivables, the originator (or its subsidiaries) would be the lender of the loans
legal assignment for the transfer of loans and receivables; and • Securities and Futures Ordinance (Cap. 571) (SFO). 1.4 Special Purpose Entity (SPE) Jurisdiction SPEs can be incorporated in any jurisdictions. Transaction parties typically use offshore SPEs due to their favourable tax treatments, stable and predictable laws and regulations, and sim - ple administration. Cayman Islands and British Virgin Islands limited liability companies are the most preferred SPE entities by transaction par - ties in Hong Kong, although Hong Kong SPEs are also commonly used. There were occasional examples of PRC and Taiwan SPEs, but they were mainly used by large PRC/Taiwan multi - national companies due to regulatory/licensing reasons. 1.5 Material Forms of Credit Enhancement Depending on the transaction structure and the goal that the originator is trying to achieve (eg, off-balance-sheet treatment), various forms of credit enhancement may be used. Typically, the issuer’s bank accounts and underlying assets (eg, loan/lease receivables) of the issuer will be charged in favour of the note trustee for the benefits of the noteholders, and to secure the principal and interest payments under the notes. The originator or its affiliate(s) may provide other forms or credit support – eg, standby letter of credit, corporate guarantee or subordination.
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