NETHERLANDS Law and Practice Contributed by: Mandeep Lotay and Dámaris Engelschman, Freshfields LLP
These types of securitisations are also referred to as “balance sheet securitisations”. Two main structures exist to achieve the risk transfer: (i) hedging arrangements with the use of collateral (ie, funded synthetic securitisation) and (ii) hedg - ing arrangements without the use of collateral (ie, unfunded synthetic securitisation). Funded Synthetic Securitisation With a funded synthetic securitisation, the origi - nator enters into a credit default swap (CDS) agreement with a newly established orphan SPV. Under the CDS agreement, the originator agrees to pay risk premiums to the SPV and the SPV agrees to pay the originator a certain amount of compensation if a pre-determined credit event with respect to a reference portfolio occurs. To fund its financial obligations under the CDS agreement with the originator, the SPV issues credit-linked notes (CLNs) that will reflect dif - ferent risk profiles. The issue proceeds will be allocated to purchase highly liquid assets that will serve as collateral for the SPV’s payment obligations under the CDS agreement with the originator. In return for their investment in the CLNs, noteholders will receive an interest rate that reflects the CDS premium paid by the originator, and the principal will reflect the prin - cipal amount paid by the investors minus the compensation paid by the SPV to the originator under the CDS agreement. Unfunded Synthetic Securitisation Conversely, with an unfunded synthetic securiti - sation transaction, the parties do not make use of a SPV, and the collateral is not posted to cover payment obligations. Unfunded synthetic secu - ritisations are usually entered into with the most creditworthy institutions, such as central banks. Accordingly, originators directly enter into a CDS agreement or a financial guarantee arrangement with an investor (or multiple investors), which
usually has/have the same mechanisms embed - ded as with a funded structure. The originator will pay risk premiums to the investor(s), and, upon the occurrence of a pre-determined credit event affecting a reference portfolio, the investor(s) will allocate compensation to the originator. 6. Structurally Embedded Laws of General Application 6.1 Insolvency Laws For most asset classes, transfers of receivables do not come up against any Dutch insolvency law issues, as most financial assets that are trans - ferred within the context of a Dutch securitisa - tion transaction qualify as existing receivables ( bestaande vorderingen ). However, the transfer of operating lease receivables is considered prob - lematic from an insolvency law perspective as these lease arrangements fall within the scope of the legal framework for rental agreements. It follows based on jurisprudence that receivables resulting from rental agreements only “come into existence” once the lessor has performed its obli - gation corresponding to right of payment. Conse - quently, almost every operating lease receivable qualifies as a future receivable ( toekomstige vor - dering ). It also follows from the Dutch Bankruptcy Act ( Faillissementswet ) that receivables that have not come into existence prior to the day of the originator’s/seller’s insolvency will remain part of the originator’s/seller’s estate, which makes it challenging for transaction parties to transfer the operating lease receivables via assignment with - out accepting significant originator bankruptcy risk. Nevertheless, various alternative structures to transfer interest in operating lease receivables have been adopted in the Dutch securitisation market.
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