Following years of deliberation, the Greeks are now attempting to clear up many of the difficulties that had prevented potential private sector originators from accessing the securitization market. Preliminary reports indicate the new Greek securitization framework is extremely user-friendly, and in need of only nominal changes, ones that will likely be addressed once the market gets underway.
As of press time, the law was awaiting official publication in the government gazette, in order to become actual law - and already the market's bursting with possibilities.
Greek transactions have in the past been limited to the public sector, government-supported deals adhering to special provisions that specifically addressed the securitization of government assets. Including the recent TANEO deal in May (see ASR 5/19), Greece has executed a total of five sovereign-linked securitization transactions. In the past, under the law, private sector deals would have been possible, but a number of obstacles made it a pricey and structurally complicated funding alternative.
However, banks responding to increased pressures to enhance shareholder returns and improve balance sheets have long pressed for changes in the legislation that would make securitization a viable funding alternative. And they finally got what they asked for.
"We think the law is very user-friendly and will be utilised quite widely among a number of financial institutions - some will be looking to bring securitizations to market in the next few months," said one market source. One of the stronger points of the law is its broadness. It incorporates two sections: one on the securitization of receivables and a second section specifically addressing real estate assets. All possible assets including future receivables are fair game. The law also permits third-party credit enhancement and the use of derivative instruments.
Sources say that Greece has tuned into the Italian, Spanish and Portuguese securitization laws in order to get an understanding of how the market works, while at the same time looking at how these could be addressed in a Greek context. The country needed a specific law to get around difficulties surrounding the sale of receivables, which under past legislation had attracted a hefty stamp duty, and under the Greek Civil Code the law also required the notification of debtors. "The Association of Greek Bankers asked me and other participants to be involved and to provide unofficial comments on what we thought needed to be addressed," said Yannis Manuelides, an English practising solicitor of Greek origin at Allen & Overy. "The input we gave has helped the law to read better than it might have, had we not participated."
Some of the more pressing points, such as the tax issue, have been done away with, which Manuelides describes as "tremendous,"- so sales are now subject to nominal fees and have been exempted from stamp duty tax, registration fees or any other fee - direct or indirect.
However, Manuelides says, two taxes remain applicable: VAT and withholding tax. Greece taxes foreign SPVs with a 40% withholding tax unless there is a double taxation treaty that abolishes the charge, for instance the one set up with the U.K. In the past, this has made transactions very expensive. The new securitization framework establishes the concept of a Greek SPV but also allows for the use of foreign SPVs.
According to Manuelides, if the SPV is a Greek vehicle it must be a societe anonyme, the shares of that SPV must be registered and the face value of the notes issued by the SPV should be at least E100,000 (US$115,650).
However, Manuel- ides cautioned that in the beginning the establishment of Greek SPVs was likely to be fraught with accounting, tax and regulatory difficulties. In the short term, it is likely that originators might prefer the use of English SPVs because they are not subject to a withholding tax and they might prove easier to establish, he explained.
And originators can look forward to a shorter execution process. In the past, any assignment of receivables under the Greek Civil code required the notification of the debtors; now notification of the underlying obligors is executed via registration in a public registry book.
Under the new securitization law, distribution of bonds are limited to a maximum of 150 investors and the minimum denomination of a bond is E100,000 (US$115,650). The notes can only be sold via private placement.
According to market sources, the objective behind such provisions was likely to be to limit smaller investors like retail clients from participating in future transactions. However, sources said it is not clear whether this provision might adversely affect the growth of securitizations in the future, and it's likely that if the wording presents problems, the law will be revisited.
"This is probably in place because of some misunderstanding," explained Manuelides. "In Parliament some opposition MPs said this is a bad law because it may be promoting the securitization of bad receivables. Some people were under the impression that these notes will be complete and utter junk, whereas the reality is that if you have a major investment bank arranging the deal and a major Greek corporate or bank as originator, the notes they will want to issue will be investment-grade, of as high a rating as possible."
And under the terms of the new law, securitizations require at least one rating from any of the accredited rating agencies. Further, unlike the past in which sovereign related transactions that were directly linked and limited to the Hellenic Republic's rating, a rating agency now might see a structure and
feel comfortable that it can achieve a triple-A.
In fact, many of the obstacles under past regulations were due to a lack of experience, in terms of how securitization worked. Previously for instance, Greek banks could only carry out the servicing on deals, but the industry questioned whether Greek banks had the capacity to service all the deals. This was therefore changed and now the servicer can in practice be anyone.
Deals on the way
The new Greek securitization law provides an attractive framework that even in its early days excludes the limiting provisions that have seen other infant markets focus first on mortgages. "Its likely that you'll see some of the standard structures emerge first, because that's what the market better understands, but financial institutions aren't limited to just RMBS deals," said one market source. "Typically, new laws can be narrow but you'll find that in Greece they are applicable across a number of assets."
Sources at Fitch Ratings said that at this point they had seen various proposals but added that it would take some time before the first deal comes to market. Fitch says that it organized the first seminar on Greek securitizations, held in Athens in 2001, and has also provided input during the drafting of the current law.
The law is also applicable to corporates, but it will be limited to the larger corporates that can meet the minimum asset requirement of E350 million (US$401 million).
As for the government, sources said that it's a positive sign that the Hellenic Republic has so heavily promoted the drafting of this new law. They added that it is also likely that the government is presently reviewing its own structures, so as to comply with Eurostat regulations. It's likely, however, that in the beginning the market will see quasi-government structures rather than deals straight from the Hellenic Republic. It's rumoured that Greece's Public Power Corp-
oration is likely to tap the market once the law is installed. "The only way the government can access the market is to comply with Eurostat regulations and now they have a guide to follow for future securitizations," said one source. "But they will only securitize after the market has been tried and tested."