Though RMBS transactions still dominate Dutch issuance - eight of the 13 public transactions from the Netherlands in 2001 were mortgage-backeds - other asset classes are now emerging, with CMBS, operating lease transactions and whole business securitizations now on the country's agenda, sources say.

"A lot of commercial real estate funds are looking at securitization, and corporates are considering securitizing their property portfolios," says Robert Plehn, head of securitization at ING Barings. "Car leasing companies are also considering securitization."

There are two main reasons for increasing diversity of assets, according to Plehn: first, companies in the Netherlands are becoming more familiar with securitization; and second, banks are becoming more sensitive on the pricing of their unsecured loans and are starting to consider the new Bank of International Settlements (BIS) regulations on risk-weighting of assets.

Additionally, the growth in volumes of assets other than RMBS is the result of a maturing market. "At the start, issuers securitize asset classes for which they have historic data available, so that well-diversified portfolios can be constructed," says Kornelis Lammerts, head of Benelux securitization at ABN AMRO. "Residential mortgages are a good example, as we saw in 1999 and 2000. The next stage is the emergence of more diverse asset classes."

ABN AMRO's EURO12.5 billion Amstel transaction in 2001 was a follow-up to a EURO8.5 billion securitization of corporate loans in 2000, and going forward the firm expects to do more deals, with at least one other CLO transaction launched by year-end. "Besides the various more-or-less standardized transactions, we expect that this year people will come to the market with innovative deals," added Lammerts.

CMBS

In 2001 Westfalische Hypo-thekenbank issued the first Dutch CMBS transaction, the EURO198.9 million Dutch Dream synthetic transaction. Though a boom is not expected in this asset class, Moody's Investors Service reports that it has received more queries on pure Dutch CMBS.

In the second or third quarter of this year a CMBS securitizing a portfolio of Dutch rental units is expected to emerge, worth at least EURO1 billion. It is thought that this will be a one-off deal but it should pave the way for more activity. "There will be more developments with regard to CMBS," says Lammerts. "I think 2002 and definitely 2003 will see more activity, as there is an increasing appetite for these deals. The rental portfolio deal expected this summer will trigger new appetite and open up this area of the market in coming years."

Potential originators include real estate funds, which will look to CMBS as an alternative funding source. "Pension funds might also issue CMBS, because they have overexposure to this asset, and want to restructure their balance sheets," adds Lammerts.

However, securitization of real estate portfolios by corporates poses some problems. "Some of the corporates are lacking a rating, although they would probably fall into the triple-B to single-A area," Lammerts said. "There are also legal and fiscal issues to be resolved, and people are thinking about how to do this." Fiscal problems include the question of whether the corporate portfolios would be exempt from tax or not, and how a transfer of assets would be structured.

Nevertheless, Dutch commercial property loans should also be placed into pan-European transactions.

Whole business deals?

Whole business deals would be much more complicated to do in the Netherlands than in the United Kingdom, for a number of reasons. The insolvency law in the Netherlands and continental European jurisdictions is traditionally not as creditor-friendly as in the United Kingdom. In the Netherlands, security rights differ from the U.K. fixed and floating charges.

It is also not possible to avoid the applicability of the bankruptcy law in the case of the insolvency of a business. Further, the holder of a security right in the Netherlands is not entitled to take control over the business, but only has the right to enforce its security in the case of a default; moreover, a receiver cannot be appointed to take control of certain assets, as happens in the United Kingdom.

Willem Ruys, partner at the Dutch law firm NautaDutilh, explains that as a result of the barriers that the market faces, the type of structures used to achieve a whole business securitization would change according to the assets used and the business involved. "A possible structure would involve the true sale of a business to a special purpose vehicle (SPV), and then essentially a lease of the assets back to the company," Ruys said. "In this way, the assets would be separated from the operating side of the business which manages the assets."

These two sides of the business could be linked through a servicing agreement between the asset-holding business and the operating part of the business. Although Ruys accepts that this could raise some tax and accounting issues, he does not believe these issues will be insurmountable.

Whole business deals should get done this year. ING Barings is working on a couple of deals expected in the third or fourth quarter of 2002, which will be done in the private market, with at least another one or two being considered by other institutions.

On the whole, these deals are not expected to be too large, though there could be one or two worth EURO1 billion or more. The transactions are more likely to follow the structure of the Tenovis transaction in Germany, which securitized existing receivables.

Regulatory issues

Meanwhile, the Dutch central bank is considering updating its securitization guidelines. It is not certain when the revisions will be introduced, but it may be before the new BIS rules, as the introduction of these keeps getting pushed back.

But there is also the possibility that the central bank will not pursue the revision if the new BIS rules are implemented. In any case, no major changes are expected.

"The Dutch central bank is reviewing the 1997 securitization guidelines," said ABN AMRO's Lammerts. "I do not expect any major changes in these, though the bank will probable fine-tune them. This is partly in response to Basel, and to achieve greater convergence with the European central banks."

In January, anti-money laundering legislation came into force in the Netherlands, as part of the anti-terrorism measures taken in some countries following the attacks in the U.S. last September. This allows financial companies only to issue bearer debt unless the issuance is registered or has obtained exemption from the central bank. Privately placed securitizations now need to gain this exemption.

While this is not a lengthy procedure, it means the issuer needs to produce a lot of information. "This could potentially make people seek a jurisdiction where it is easier to do a private placement," says Berend Cranz, partner at De Brauw Blackstone Westbroek.

It is now unclear as to whether notes with a maturity of more than 10 years will be considered as debt. The Ministry of Finance still has to decide how the Dutch tax authorities will respond to ruling applications regarding notes with a maturity in excess of 10 years, where payment of principal is largely subject to the actual payment of the obligor of the reference obligations.

In particular, junior notes with a low credit rating have such a great dependency on this that the notes have a risk profile, which resembles equity rather than debt. Interest payments could, therefore, qualify as dividend and be taxed accordingly.

The Ministry of Finance is expected to make a ruling on this soon, though it should have minimal effects on securitizations, as the majority of Dutch deals do not have a maturity of more than 10 years.

Issuers also have to inform underlying borrowers when they are transferring underlying assets to a SPV. A number of market participants want this to change, but this issue has been under discussion for years with no sign of any resolution as yet.

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