A critical amendment to German insolvency law expected in the first half of 2005 is still needed before true sale securitization in Germany will take off, according to securitization lawyers. In a cash securitization the underlying assets must be bankruptcy-remote, but German law still does not provide a clear framework for this across asset classes and issuers.
The proposed amendment to the German Act on the Credit System (Kreditwesengesetz) would introduce a so-called refinancing register. Any assets registered by the originator would be outside the insolvency estate of the issuer and accessible only to the SPV and its creditors, said Mark Odenbach, a lawyer at Baker & McKenzie in Frankfurt.
The passage of the insolvency law will make it possible to do a cash securitization of any asset, since the registration process will apply to all asset classes and not just receivables. This is particularly important in getting the German residential mortgage-backed market off the ground, observed Odenbach. "As the law currently stands, it is very difficult to define a sale without the risk of its being re-characterized as a secured loan, which has negative consequences for the ratability of a securitization," he said.
So far only one cash transaction, Driver One, has been documented under the True Sale International platform, a model which was set up in May by the 13 banks involved in the True Sale Initiative launched about a year ago (BW 12/18/03).