Securitisation gets a boost

New Bank of England proposals relating to banks' balance sheet treatment of securitised assets will give a boost to securitisation, according to a top lawyer.

Chris Field, Clifford Chance partner and a specialist in securitisation, said the proposals, published in a consultation document, were “another important development in the growth of securitisation in the UK”.

For top City law firms, securitisation was seen as a major growth industry, said Field. However, proposed restrictions could hamper some deals and worry institutions, he added.

The Bank's long-awaited paper proposes to abolish the cap on the total value of securitised assets that can be taken off a UK bank's balance sheet.

Such revolving credits include assets such as credit card debt and overdraft facilities. Previously the bank had sought to limit the total value of securitised revolving credits that might be removed from the regulatory balance sheet of a UK bank to 10 per cent of its solo capital base. Under the new proposals, this limit would cease to apply provided certain criteria concerning liquidity, loss-sharing and early amortisation (repaying investors early as a result of certain 'trigger' events) are met.

Field, who handled the first UK securitisation of credit card debts for MBNA International Bank recently, said his first impression of the proposals “will have the effect of encouraging securitisation of revolving credits… the potential for more securitisations of revolving credits is greatly increased”.

The Bank's thinking on the subject had “clearly developed” since 1992, when the current requirements were issued, said Field. But he added: “I think, however, that the proposed restrictions on the use of early amortisation triggers could be problematic for some securitisations. I'm expecting the responses of most institutions to focus on this.”

Field worked on the UK £207.5 million deal for MBNA International, the second-largest issuer of credit cards in the US, in the first securitisation of credit card debts in the UK.

Herbert Smith and US firm Mayer Brown & Platt were also involved in the deal.

In the US around $125 billion of credit card backed securities were outstanding, with a further $50 billion expected to be issued this year alone, according to figures collated by Clifford Chance.

The Bank's closing date for comments is 30 November.