The Bank of Spain moved closer to implementing amendments to its existing securitization law of 1981. The changes have been in the works for the last two years and started getting finalized at the end of 2007.
Last week the bank entered the final stretch of its consultation period, and industry sources expect the amendment to become law in a matter of weeks.
The new legislation will facilitate the securitization of Spanish assets via a foreign special purpose vehicle, effectively opening the market to a broader investor base. It will also improve the collateralization levels embedded in structures.
The new law is also expected to bolster investor confidence in the RMBS and covered bond markets by improving access to collateral information. The goal is to impose greater transparency on MBS issuers - Cedulas and RMBS - and to provide details on the underlying assets backing the transaction, although these changes fall in line with what other European Central banks require, a market source said. The government is hoping that by making the market more transparent, it will reignite activity.
"We have definitely seen talks of a new decree, but these are technical improvements that were considered before the credit crunch," said an attorney at Freshfields Brukhaus Deringer's Spanish office. "Now I think they will have to reconsider certain issues." The attorney said that he had yet to see the final draft of the legislation and believed it was unlikely the law would be fast-tracked.
But Soledad Martinez, an analyst at Standard & Poor's, said that based on the market players' response from market sources at several industry gatherings regarding the new decree, it's unlikely that anything new will be added. "What we have seen is an indication that the amendment will be done," she said. "The market recognizes that this has been worked on for a long time and therefore does not anticipate any changes, even with the current behavior of the market."
Getting investor confidence on track will only be a good thing for a sector that has stood still since the credit crisis erupted. Spanish commercial banks have had to shift their business models to accommodate the disappearance of wholesale funding. Financial institutions instead have turned to the ECB repo facilities, issuing privately placed covered bonds of six- to 18-month maturities. European securitization activity in general seen to date has been oriented toward the structuring of ECB-eligible tranches, with the potential for central bank repo funding.
The concern is where banks, which are unwilling to pay the hefty spreads in the securitization market, will turn once the ECB closes its facility. Martinez said the law will likely help reignite the market.
"There are definitely some changes underway in Spain, and we are definitely supportive of anything that will get investor confidence back," a source at the European Securitization Forum said.
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