Ruth Galea, Partner at WH Partners, has written an article in Acquisitions International entitled An alternative to traditional corporate finance: Securitisation Cell Companies in Malta. In the article, Ruth addresses the growth of diversification in alternative financing opportunities in Europe.
The growth of diversification in alternative financing opportunities is a natural consequence of a European financial services environment, in which banks and quasi-bank funding markets are increasingly reluctant to commit to long-term lending. This has steadily boosted the market for new sources of funding in particular securitisation transactions.
Malta’s securitisation legal and regulatory framework establishes a transparent and effective funding tool for businesses which is broad enough in scope to allow all types of assets and receivables which provide an income stream to be securitised, whether existing or future, moveable or immoveable, and tangible or intangible. A Maltese securitisation structure is an arrangement whereby a special purpose vehicle (‘SPV’) acquires the securitised assets by any means, assumes risks, or grants secured loans or other secured facilities by financing these through the issue of financial instruments. SPVs in securitisation transactions may under the Maltese law take the form of a company, partnership, trust, foundation, or other legal structure that has been approved for the purpose by Malta’s single financial services regulator, the Malta Financial Services Authority (‘MFSA’).
Through the introduction of unique regulations under Malta’s Companies Act at the end of 2014 and as part of a drive to enhance capital markets activity in Malta, the Maltese legislator extended the use of protected cell company structures which had garnered much popularity within the insurance industry to the securitisation transactions. In doing so, Malta became the first EU Member State to allow for the use of protected cell companies as securitisation vehicles. This move additionally pre-emptively complemented the European Commission’s drive for the creation of a European Capital Markets Union proposed this February 2015, in which securitisation transactions are expected to play an important role.
A principal feature of a securitisation cell company is that its individual cells and their comprised assets and liabilities are treated as a separate patrimony from the assets and liabilities of every other cell and from the securitisation cell company itself, ensuring also thus that no cross-contamination occurs should one individual cell become insolvent. Securitisation cell companies may commence business once they notify the MFSA, while securitisation companies that propose to issue financial instruments to the public must be licensed prior to the issue to the public. From a fiscal perspective the securitisation vehicles may benefit from Malta’s attractive tax regime.
The Maltese securitisation cell companies regulations promise an advantageous and innovative funding mechanism for businesses seeking legal certainty on fundamental aspects relating to segregation of cell patrimonies as well as flexibility in structuring the securitisation transaction and in so doing consolidate Malta’s potential to cement its position as the domicile of choice for European securitisation transactions.