Securitisation

Securitisation is the transaction in which the credit risk associated with an exposure or a pool of exposures is divided into tranches. Under article 2 of Regulation (EU) 2017/2402, payments depend on the performance of the exposures and the subordination of the tranches determines how losses are allocated. For a company, securitisation takes the form of a trade receivables programme. The company sells its customer invoices to a securitisation vehicle (organisme de titrisation), which funds their purchase by issuing senior notes that investors subscribe and subordinated notes. Under French law, articles L. 214-168 to L. 214-190 of the French Monetary and Financial Code (Code monétaire et financier) govern securitisation vehicles, which take the form of a securitisation company (société de titrisation) or a securitisation fund (fonds commun de titrisation). The European regulation requires the originator, the sponsor or the original lender to retain a net economic interest of at least 5%, for example 5% of the nominal value of each tranche or the first loss tranche. In a trade receivables programme, the company keeps the subordinated portion that absorbs the first defaults. The amount financed follows the outstanding eligible receivables, which each new sale replenishes. This financing is aimed at companies that hold a large and diversified pool of receivables and have an information system able to produce regular reports on those receivables.

A mid-cap company that permanently holds €200m of trade receivables sells them to a securitisation fund. The fund finances €160m through senior notes that investors subscribe and €40m through a subordinated note that the company keeps and that absorbs the first losses. The company receives €160m at launch, then sells its new invoices each month to maintain the programme.

• The eligibility criteria for receivables and the concentration limits by customer
• The size of the subordinated portion retained and its effect on net financing
• The events that stop the replenishment of receivables
• The accounting treatment and any derecognition of the receivables from the balance sheet
• The set-up and monitoring costs of the programme