Securitisation 2025

CHINA Law and Practice Contributed by: Borong Liu, Xiaoli Liu, Jingyi Lu and Zhijie Zhang, Zhong Lun Law Firm

The plan manager or trustee’s role often over - laps with the issuer, the main responsibilities of

• the conditions for the establishment of the trust; • the redemption of ineligible assets; • the rights perfection mechanism; • the rights and obligations of the trust parties; • the types and characteristics of the securities; • the cash flow allocation order; • the trust termination and liquidation; • the organisational form and power of the security holders; and • the liability for defaults and indemnities. Asset Transfer Agreement In exchange market securitisations, the transfer of assets while maintaining bankruptcy remote - ness is realised through the “asset transfer agreement”. This agreement is signed between the originator and the plan manager of the ABSP. The originator transfers the ownership of the underlying assets to the plan manager to ensure the true sale of the underlying assets, in order to achieve bankruptcy remoteness. The main con - tents of the asset transfer agreement include the following: • the status of the underlying assets; • the purchase and delivery methods of the underlying assets; • the purchase price and payment; • the redemption of the ineligible assets; • the repurchase option of the asset pool; • the covenants and warranties of the buyer and the seller; • defaults and liabilities; and • the effectiveness and termination of the agreements. 3.2 Principal Warranties “Asset warranties” are the representations and warranties of the originator regarding the under - lying assets of the securitisation as of a specific date or time (such as the cut-off date and the

which can be found in 2.1 Issuers . 2.8 Security Trustees/Agents

A security trustee/agent is not necessary in Chi - nese securitisation practice because the trustee/ plan manager (on behalf of the investors) holds legal title to the underlying assets and makes payments using the cash flows generated from the underlying assets; the underlying assets are not designed as collateral for the securities. The trustee/plan manager itself plays the role of a security trustee/agent. When necessary, it has the power to dispose of or liquidate the underly - ing assets without consent from the originator, but in most circumstances it needs the approval of the meeting of security holders.

3. Documentation 3.1 Bankruptcy-Remote Transfer of

Financial Assets Trust Agreement

In credit asset securitisations and CIBM busi - ness asset securitisations, the bankruptcy- remote transfer of financial assets is achieved through the provisions of the “trust agreement”. The trust property is independent and will not be affected by the bankruptcy of the settlor and the trustee, which meets the requirement of risk isolation in securitisation. Meanwhile, the trust can achieve limited recourse – both the settlor’s and the trustee’s liabilities to the beneficiaries are limited to the trust property. The trust agree - ment is one of the core transaction documents, and its main provisions include the following: • the scope, type, standard and status of the trust property; • the delivery of the trust property;

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