Panel mulls securitization legislation

Addresses guidelines for accounting, banking, legal, and taxation issues.

After a 20-month process, the securitization committee has summed up its recommendations for the implementation of a securitization draft law in Israel. The committee was headed by Moshe Asher, advisor to the tax commissioner, and Lisa Haimowicz, special advisor at the Israel Securities Authority. The recommendations provide clear guidelines for securitization accounting as well as banking, legal and tax issues regarding securitization deals. “Europe and the US have long introduced securitization laws. The securitization market in Israel has not developed yet because of ‘stupid’ bureaucratic and legal obstacles”, said Moshe Terry, chairman of the ISA. The draft recommendations that were presented by the committee to Moshe Terry and Eitan Rov, tax commissioner, on Monday, next will be presented to the Knesset. The securitization of assets has become a common practice in international markets, turning over trillions of dollars a year in the US and Europe. The Israeli economy has in recent years experienced a severe credit crunch as the primary capital market has been locked up. As a result, companies have been seeking sources of finance outside the banks and, until now, Israeli companies have participated in securitization deals but outside of Israel because of bureaucratic obstacles. Securitization is a bond, backed by cash flows originating from various assets. The objective of securitizing is to isolate the assets from the credit risk associated with the party selling the assets (the originator). The structure of securitization deals requires the originator to set up a special purpose company (SPC) to issue the bonds and handle its interest payments. The result is the transformation of cash flows into a marketable security with a relatively low risk level. “Most importantly the interests of all the parties involved, debtors, creditors and investors must be protected. Our model is similar to the US model”, said Asher. As an example of what can go wrong without clear-cut guidelines, Car & Go, one of Israel’s smallest leasing firms, issued bonds a year ago in order to raise money. Most of the bonds were bought by provident funds and insurance companies. The bonds entered into default on their very first interest payment, though the bonds had been given an0 AA rating by Maalot rating company.