A Guide to the Law of Securitisation in Australia - Clayton Utz

Section 588FG provides a measure of protection to investorsagainst the subsequent winding-up of any party to a transactionin a securitisation program. However, the rating agencies arenevertheless concerned to ensure that the transactions in asecuritisation program are commercial and, in particular, that anysale of assets to the issuer is a true sale for full value (asdiscussed below).9.6 Segregated issuersSegregated issuers are issuers who are able to issue separateseries of securities which are backed by different assets andwhich are rated independently by the rating agencies (and whichmay have different ratings). In order to be considered asegregated issuer by the rating agencies it is necessary, amongstother things, that:• a default by the issuer in respect of one series andenforcement of the security must not of itself cause a defaultor enforcement of security in respect of another series;• creditors in respect of one series must not have access to theassets held in relation to any other series; and• there must be only a very remote likelihood of the issuerbeing wound up during the program. This must be the casenotwithstanding that in a winding up of the issuer, investorsof a series will retain their rights in relation to the relevantsecuritised assets of that series. This is because the windingupof the issuer will inevitably require the enforcement of thesecurity held for all series and a resulting early termination ofthe program.Segregation criteria are relatively easy to satisfy in relation totrust issuers. Segregation is achieved simply by creating a newtrust for each segregated series.Segregation for corporate issuers, however, is more difficult toachieve. It can be done effectively by:• creating separate security over different assets for eachseries;• limiting the default provisions in the documentation for eachseries to defaults by the issuer in relation to that series orevents that occur in relation to the assets of that series;• limiting the rights of each person who enters into atransaction with the issuer in relation to a series (includinginvestors) to their share of the proceeds of realisation of theassets of that series upon enforcement of the security forthat series; and• limiting the rights of the issuer so that the issuer is unable todo anything other than act as the issuer in the securitisationprogram and, in particular, is not permitted to incur anyliability other than a liability which is limited as described inthe previous paragraph.9.7 Rating agencies criteriaThe rating agencies impose a number of restrictions andrequirements upon issuers as a condition of rating their securitiesin order to minimise the risk to investors of the insolvency orwinding-up of the issuer or of any other party to the transactionsthat make up the securitisation program. The following is asummary of the most significant of these and the reasons fortheir imposition.9.7.1 Commercial sale of assetsWhere the securitised assets are not originally the assets of theissuer, the issuer must acquire the assets in a transaction whichis not, from the point of view of either party, an uncommercialtransaction. A failure to acquire assets for the proper value couldresult in the purchase being set aside under Part 5.7B of theCorporations Act (as discussed above).9.7.2 No mixing of assetsWhere the issuer is a trust issuer, it is important that the assetsof the trust are distinguishable from, and are not mixed with, anyother assets of the issuer or the assets of any other trust ofwhich the issuer is trustee. If assets are mixed they may losetheir characterisation as property of the trust and consequentlytheir protection from claims by any general creditors of thetrustee. Where the issuer is a corporate issuer, issuingsegregated series of securities, the assets backing each seriesmust similarly be kept separate so that the security for one seriesmay be enforced without impacting on the continued operation ofanother series.9.7.3 Limited powers of issuersBy limiting the powers of trust issuers it is possible to limit thepotential for creditors to exist who have access, throughsubrogation to the trustee’s right of indemnity, to the assets ofthe trust. So, for instance, if a trustee is prohibited by the termsof the trust deed from engaging employees in its capacity astrustee then if, in breach of the trust deed, the trustee purportsto engage employees in its capacity as trustee neither the trusteenor those employees through it will be entitled to be indemnifiedfrom the trust assets against the costs of the employment.56