The German Parliament's move to eliminate collection permits for ABS transactions is expected to pass before the upper chambers of parliament in the coming weeks. Perhaps it is a small step towards opening up true-sale securitizations; nonetheless, it does away with a needless bureaucratic headache that made accomplishing German true-sale structures that much harder, said market sources.

"Abolishing this legislation makes true-sales easier despite the tax uncertainties that still exist," said one source familiar with the situation. "This is one point that has caused unnecessary troubles, especially in terms of timing, not to mention that the process of obtaining this license often require talking to some judge at a local court who has never heard of ABS before."

Under German law, payments collected by a company on assets owned by the company are exempt from obtaining the permit despite the fact that their core business is not collection. However, once these assets are sold, for example via a true sale, it no longer technically qualifies for this exemption. The prevailing practice required the seller to obtain the permit because the seller was collecting receivables, which it no longer owned for a third party, namely the special purpose vehicle.

As it existed, the German legislation required these companies to file for a collection permit. "German law required this permit just because they sold off the assets," said one analyst. "If they didn't have the license these companies would suffer the penalties." Penalties could include fines which may endanger the transactions.

Dr. Kurt Dittrich at Linklaters Oppenhoff & Radler said the move was a new stimulus for ABS financing.

Prior to the new legislation the seller not only had to obtain the permit but also was required to fulfill all of the requirements that are usually imposed on a collection agency, despite the fact that the sellers were acting no differently towards their customers than in the past, when they collected receivables for their own account. "The problem was not only that you had to get the license [which could take three to six months] but you couldn't right away because you were not an eligible servicing company and if you didn't the whole thing was illegal," he said.

This dilemma created the biggest glitch of all, said one source. Included in the criteria to qualify as a collecting agency, originators were required to mention on company letterhead that they had a license to collect debt. The stigma attached to debt collection often made companies uneasy because they did not want this to appear as a focal point of their business.

"Over time there are various ways of collecting debt and sometimes those agencies can have a bad reputation," said one analyst. "The last thing an originator like Daimler-Chrysler wants to be associated with is that they are collecting bad debts because they have built their reputation on the business of selling cars, not collecting debts."

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