Does the term ‘securitisation’ defined in Article 4(1)(61) CRR capture loan origination, as opposed to loan acquisition, where the loan origination occurs over a defined period and is subject to the originated loans satisfying specified eligibility criteria, and is funded by the originator issuing tranched debt with the subordination of the tranches determining the distribution of losses during the ongoing life of the portfolio of originated loans?
A special purpose corporate entity is established as a direct lending vehicle (e.g. as a specialist lender to the SME sector) (the “Loan Origination Vehicle”). The Loan Origination Vehicle’s lending business is funded by the issuance of debt securities to investors. The debt securities are secured on the portfolio of loans, which is originated over a defined ramp-up period, by the Loan Origination Vehicle and are limited recourse obligations of the Loan Origination Vehicle. At least two classes of debt securities are issued, with one ranking senior and carrying a fixed coupon and the other ranking junior and carrying a profit-participating type of return. An investment manager (which may or may not be an authorised investment firm) is appointed to manage and effect such origination of loans on behalf of the Loan Origination Vehicle, including to source lending opportunities, conduct negotiations with proposed borrowers, make necessary determinations in respect of the loans comprised in the portfolio over their lifetime, subject in all cases to eligibility criteria specified in a management agreement made between the Loan Origination Vehicle and the manager. The Loan Origination Vehicle would be the lender of record in respect of all loans comprised in its portfolio. All loans in its portfolio would be directly originated by it and not acquired from other lenders, whether on syndication or otherwise. The envisaged structure is similar to a CLO transaction, with the important distinction that loans will be originated directly by the Loan Origination Vehicle, rather than acquired in the secondary loan market. The Loan Origination Vehicle would not conduct any business other than the transaction described above.
The definition of “securitisation” according to Article 4(1)(61) CRR, as well as the definition of “securitisation” according to Article 2(1) of Regulation (EU) 2017/2402 (Securitisation Regulation), does not distinguish according to how or by whom a securitised position was generated. In particular, in order to classify a transaction or scheme as a securitisation, the CRR does not require an exposure to be first created or purchased by one party and transferred to another party afterwards.
The retention rules according to Article 405(1) CRR relate to a securitisation position, where a securitisation position is defined by Article 4(1)(62) CRR as an exposure to a securitisation. The application of Article 405(1) therefore depends on whether a transaction or scheme is a securitisation within the meaning of Article 4(1)(61) CRR.
It should be noted that according to Article 6(1) of Regulation (EU) 2017/2402, for the purposes of risk retention an entity shall not be considered to be an originator where the entity has been established or operates for the sole purpose of securitising exposures.