UK Law and Practice Contributed by: Guy O’Keefe, Richard Jones, Oliver Wicker and Kate Patane, Slaughter and May
• Trade receivables securitisations typically operate by the sale of customer invoices by an ordinary operating corporate to a structure set up by a financing bank. Structures are typically designed such that the corporate is not considered to be the originator of the securitisation (thereby ensuring the corporate avoids being subject to securitisation-specific regulatory requirements). Securitisation structures are typically con - structed to be bankruptcy-remote, meaning the SPE’s assets remain beyond the reach of the originator’s creditors in the event of bankruptcy. In addition, credit enhancement techniques are used to achieve desired credit ratings and to attract investors. In a standard securitisation, it is common for the originator to continue to administer the receiva - bles on the SPE’s behalf under a servicing agree - ment in return for a servicing fee. The originator will typically maintain the original contract with the underlying debtors. To mitigate the risk of non-performance by the originator of the ser - vicing and collection role, back-up servicers may also be appointed during the lifetime of the transaction, such that an alternative and suit - ably experienced and creditworthy entity is in a position to take over the servicing of the receiva - bles in the event of a default by the originator/ servicer. Payments are made according to a priority order of payments specified in the transaction docu - ments (often referred to as the cash flow water - fall or priority of payments). Any money left over after all such payments have been made is extracted from the SPE and either retained by the holders of the most subordinated tranche of securities or passed back to the origi -
nator using various profit extraction techniques. These profit extraction techniques may include: • the originator taking fees for administering the receivables contracts and collecting the receivables, arranging or managing the port - folio of receivables and/or acting as a swap counterparty; • the SPE paying the originator deferred con - sideration on the receivables purchased; • the SPE making loan payments to the origi - nator in respect of any subordinated loans granted by the originator; or • the originator holding equity securities/the most subordinated tranche of securities in the SPE. 1.3 Applicable Laws and Regulations Securitisation transactions are governed by a complex framework of laws and regulations that encompass corporate law, contract law, insol - vency law, regulatory requirements and, where applicable, specific securitisation regulations. Historically, an important piece of legislation was the Securitisation Regulation (EU) 2017/2402 (EU Securitisation Regulations), which was onshored post-Brexit. However, on 1 November 2024, the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) released new rules that, together with the Securitisation Regulations 2024 (as amended by the Securiti - sation (Amendment) Regulations 2024 and the Securitisation (Amendment) (No 2) Regulations 2024, the latter of which have not yet come into force at the time of writing) (the “Securitisation Regulations 2024 (as amended)”), will replace the assimilated version of the EU Securitisation Regulations (the “UK Securitisation Regulations Framework”). These rules will regulate not only authorised firms that are involved in securitisa - tion, but also entities that are not authorised but that act as original lender, originator or securiti -
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