The main benefits of the Securitisation for originators/issuers
- A structure providing efficient access to capital markets:
Possibility of high rating for most tranches of notes issued
Positive and significant impact on borrowing costs for cash flows securitisation
- Issuer specific limitations on ability to raise capital are reduced:
Entities unable to raise capital due to their specific circumstances (terms, credit quality, prepayment assumptions, etc) are able to raise capital under the securitisation
- Possibility to create liquidity:
Assets that are not readily sellable may be combined to create a diversified collateral pool funded by notes issued by a securitisation vehicle.
- Ability to diverse and target different investor base, funding sources and transaction structures:
It can reach new markets and investors groups
There might be potential debt costs reduction and specific issuer risks exposure reduction
It also enables originators to raise capital in order to generate extra assets
- Possibility of raising capital without prospectus-type disclosure:
Confidentiality is strengthened regarding sensitive information, this is specifically the case in regards to conduit or private placement
- It enables the generation of earnings:
During a true-sale securitisation, the transaction will be reflected on the balanced sheet of the originators, hence generally resulting in improvement in terms of earnings.
- Merger & acquisition completion and efficient divestitures
Possibility to be complementary to M&A activities by providing a source of capital
Optimisation of business closure due to assets segmentation/sale
- Third parties risk transfer
Potential to partially or fully transfer the associated sale transaction or risks to investors and credit enhancers
- Capital requirements are lowered for banks and insurance companies:
The removal of the assets within a company’s balance sheet lowered the requirements of related capital, resulting in the capital being available for other purposes
The main benefits of the Securitisation for investors
- Wide number of possibilities in terms of risk, yield and maturity
There is a great variety of product range offer to meet investors requirements
- Tailored investments sources:
Investors are able to pick and choose the additional asset(s) lacking to their existing investment portfolio
- Potential higher returns
In the case of a specific high-quality credit enhanced assets pool, there is a greater possibility to earn higher returns on investments
- Risk sharing
Due to the nature of the securitisation, investors share all aspects of the vehicle with the originators, this include exposure to specific assets unreachable for them most of the time.
On top of this, the investors will benefit from the originators expertise and therefore maximize the portfolio value.
Furthermore, the risk retention requirement is reinforced due to an alignment of interest between investors and originating banks as they invest alongside each other
Finally, thanks to the securitisation, institutional investors are able to lend directly to Small & Medium Enterprises (SME)
How to use securitisation to raise capital
Many promoters or entrepreneurs are using the securitization SPV to attract and raised capital without giving away some of their portion of equity.
The process is quite simple and straight forward, a Securitisation Vehicle (SPV) will be set up by the promoter and the SPV would issue Notes (bonds/certificates) to Investors. The proceed of the Notes is then used either to acquire an asset or to grant a loan in the form of a facility agreement to finance an operational Company, a business, an acquisition, a deal or any type of assets.
The loan will generate an interest payable by the operation Company to the SPV which will in turn pay a yield to the investors on the Notes.
The interests due to the SPV on the loan may be fixed, variable or fully profit participating (for instance a portion of the profits generated by the Company and likewise the yield payable to the investor may be a fixed coupon or a variable with a profit participation every year or at the end of the project.
The SV serves as a pass-through entity. The Notes may be listed, rated and may receive an Isin number for clearing.
Creatrust provides various solutions to issue such Notes and other instruments for the acquisition or financing of any kind of businesses, small and medium-sized enterprises to the more established companies looking to attract external capital for specific projects.
Thanks to the flexible framework of the securitisation law such capital raising can start from as low as EUR 1 million and with lead times of a couple of weeks only.
Find more about the securitisation process
by downloading our brochure