1. Structurally Embedded Laws of General Application
1.1 I Insolvency Laws
As elsewhere, most securitisations carried out in Panama are structured in the following manner: a special purpose vehicle (SPV) is constituted by an originator that owns assets that it intends to securitise. The SPV performs an offering of securities (usually debt instruments such as bonds or notes) and uses the proceeds received from the offering to purchase the assets from the originator. The originator receives cash, the SPV receives the assets and the flows generated by the assets are used by the SPV to pay sums due under the securities to investors, who are creditors of the SPV and not of the originator.
A properly structured securitisation should prove to be beneficial for all parties thereto. Benefits for originators include access to a new (and potentially cheaper) source of funding, improved liquidity and risk profile, and opportunity to expand operations with cash received. Benefits for investors include the possibility of investing in securities that do not carry the risk of the originator itself and the repayment of which only depends on the quality and performance of the assets securitised.
For the aforementioned benefits to materialise, certain requirements must be fulfilled in a securitisation transaction, none of which is more important than achieving a “true sale” of the assets from the originator to an insolvency remote SPV. It is only once this goal is accomplished that the investors truly hold an investment that is shielded from the risks of the originator and its business and is linked only to the risks related to the underlying assets.
Achieving a true sale of the assets is a fundamental element in any securitisation since it is necessary for the assignment of ownership of the assets from the originator to the SPV, thus removing the assets from the patrimony or estate of the originator and, in so doing, granting the SPV sole and exclusive title to the assets, insulating them from the financial risk of the originator and without them being available to fulfil obligations of the originator in case of insolvency or otherwise
True sale v secured loan
As elsewhere, securitisations and secured loans or securities offerings in Panama are similar but not identical transactions. For example, financing may be granted by an entity and secured by constituting guarantees, such as mortgages or pledges, over real estate, movable property and other assets of the debtor. In these cases, the assets are not transferred to the creditor through a true sale and remain the property of the debtor but the creditor has a preferential mortgage or pledge right over said assets. In case of insolvency, the creditor may proceed with the foreclosure of the mortgage or pledge and use the funds received therefrom as payment of the loan owed by the debtor and, until the secured creditor is paid in full, said assets would not be available to fulfil obligations that the debtor has acquired with other creditors.
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