Germany's True Sale Initiative (TSI) is finally moving ahead, as the thirteen banks to be impacted by the legislation gathered to sign the founding documents for the True Sale International GmbH. A spokesperson for the sponsoring bank, KfW, said infrastructure for securitization should be in place by this summer.

German banks have up to now only had limited access to true sale structures. In February 2003 a change in the trade tax laws - considered one of the main obstacles for true sale structures - prompted the creation of TSI (see ASR 7/14/2003). From the original five banks that began the dialog, the group has grown to include thirteen, but could potentially include more names as the structure becomes more recognizable.

TSI GmbH will be a driving force behind the standardization of the ABS market in Germany, said a spokesperson with KfW. TSI GmbH determines the criteria that ABS transactions must have in order to use the label "TSI" on the market. Acquiring this seal of quality requires a minimum standard of reporting by the originator - for investors it's a key prerequisite to gain real-time insight about transaction performance.

TSI GmbH will also monitor the minimum issuing amount required for market-making eligibility, which allows the ABS securities to be used as collateral for the European Central Bank. The spokesperson at KfW said that it would lead to an improvement in the development of a liquid secondary market and eventually the greater acceptance of this paper, which should contribute to the growth of a broader true sale market. KfW Chairman Hans Reich said he expects volume to reach about 10 billion (US$11.8 billion) within the next 12 months via the TSI vehicle, but could potentially grow to the hundreds of billions of euros in the long term.

The securitization platform will be composed of three charitable trusts located in Frankfurt, plus special purpose vehicles set up for each transaction. The charitable trusts assume the role of the shareholders of the securitization SPVs. The model will enable the establishment of 25 insolvency-remote German SPVs, which is a central requirement from the viewpoint of the rating agencies and investors.

"The securitization platform created under the charitable trust model can be used by all portfolio providers, regardless of whether they participate in the True Sale Initiative," explained a KfW spokesperson. "The trusts pursue the common goal of supporting research on the financial and capital market for Germany as a financial center. The Department of Finance of the European Business School International University in Oestrich-Winkel/Germany has already been selected as one of the beneficiaries of the charitable trusts."

According to KfW, in each true sale transaction, the respective originator establishes its own insolvency-remote SPV with a limited task profile, which meets the standard requirements of the rating agencies. These SPVs are assigned the legal form of a GmbH (limited liability company) and are donated to the three trusts to hold equal shares of these companies and thereby help make the SPV insolvency remote. The SPV buys the loan portfolio to be securitized from a bank, creates tradable securities collateralized by loan receivables (ABS) and then sells them to investors on the capital market.

"The platform is scheduled to be completed in June and, from then on, it will be possible to issue securities via the platform and the German capital markets will have a new, important instrument at its disposal," said the KfW spokesperson.

Copyright 2004 Thomson Media Inc. All Rights Reserved.

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