2013년 12월 4일 수요일

[G.B. Gorton & N.S. Souleles's] Special Purpose Vehicles and Securitization (2004 [2007])

지은이: Gary B. Gorton, Nicholas S. Souleles
출처: Mark Carey and René M. Stulz ed., The Risks of Financial Institutions (NBER 2006 [Univ. Chicago Press, 2007])

※ 발췌(reading note with excerpts):

( ... ... ) An SPV, or a special purpose entity (SPE), is a legal entity created by a firm (known ans the sponsor or originator) by transferring assets to the SPV, to carry out some specific purpose or circumsribed activity, or a series of such transactions.  SPVs have no purpose other than the transaction(s) for which they were created, and they can make no substantive decisions; the rules governing them are set down in advance and carefully circumscribe their activities. Indeed no one works at an SPV and it has no physical location.

   The legal form for an SPB may be a limited partnership, a limited liability company, a trust, or a corporation.[n.2]  Typically, off-balance sheet SPVs have the following characteristics:
  • They are thinly capitalized.
  • They have no independent management or employees.
  • Their administrative functions are performed by a trustee who follows prespecified rules with regard to the receipt and distribution of cash; there are no other decisions.
  • Assets held by the SPV are serviced via a servicing arrangement.
  • They are structured so that, as a practical matter, they  cannot become bankrupt.
[n.2] There are also a number of vehicles that owe their existence to special legislation.  These include real estate mortgage investment conduits(REMICs), financial asset securitization investment trusts(FASITs), regulated investment companies(RICs), and real estate investment trusts(REITs).  In particular, their tax status is subject to specific tax code provisions. See Kramer (2003).
   In short, SPVs are essentially robot firms that have no employees, make no substantive economic decisions, have no physical location, and cannot go bankrupt.  Off-balance sheet financing arrangements can take the form of research and development limited partnerships, leasing transactions, or asset securitizations, to name the most prominent.[n.3]  And less visible are tax-arbitrage-related transactions.  In this paper we address the questions of why SPVs exist.
[n.3] On research and development limited partnerships see, for example, Shevlin (1987) and Beatty, Berger, and Magliolo (1995); on leasing see, for example, Hodge (1996, 1998), and Weidner (2000). Securitization is later discussed in detail.
   The existence of SPVs raises important issues for the theory of the firm: what is a firm and what are its boundaries? Does a "firm" include the SPVs that it sponsors? (From an accounting or tax point of view, this is the issue of consolidation.)  What is the relationship between a sponsoring firm and its SPV?  In what sense does the sponsor control the SPV?  Are investors indifferent between investing in SPV securities and the sponsor's securities?  To make headway on these questions we first theoretically investigate the question of the existence of SPVs.  Then we test some implications of the theory, using unique data on credit card securitizations.

   One argument for why SPVs are used is that sponsors may benefit from a low cost of capital, because sponsors can remove debt from the balance sheet, so balance sheet leverage is reduced.  Enron, which created over 3,000 off-balance sheet SPVs, is the leading example of this (see Klee and Butler 2002).  But Enron was able to keep their off-balance sheet debt from being observed by investors, and so obtained a lower cost of capital.  If market participants are aware of the off-balance sheet vehicles, and assuming that these vehicles truly satisfy the legal and accounting requirements to be off-balance sheet, then it is not immediately obvious how this lowers the cost of capital for the sponsor.  In the context of operating leases Lin, Mann, and Mihov (2003) find that bond yields reflect off-balance sheet debt.[n.4]

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   Nonetheless, there are many unanswered questions.  Why are SPVs valuable?  Are they equally valuable to all firms?  Why do sponsors offer recourse?  How is the implicit arrangement self-enforcing?  The details of how the arrangement works and, in particular, how it is a source of value have never been explained.  We show that the value of the relational contract, in terms of cost of capital for the sponsor, is related to the details of the legal and accounting structure, which we subsequently explain.  To briefly foreshadow the arguments to come, the key point is that SPVs cannot in practice to bankrupt.  In the United States it is not possible waive the right to have access to the government's bankrupt procedure, but it is possible to structure an SPV so that there cannot be "an event of default" that would throw the SPV into bankruptcy.  This means that debt issued by the SPV should not include a premium reflecting expected bankruptcy costs, as there never will be any such costs.[n.6]  So, one benefit to sponsors is that the off-balance sheet debt should be cheaper, ceteris paribus.  However, there are potential costs to off-balance sheet debt.  One is the fixed cost of setting up the SPV.  Another is that there is no tax advantage of off-balance sheet debt to the SPV sponsor.  Depending on the structure of the SPV, the interest expense of off-balance sheet debt may not be tax deductible.

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12.2 Background on SPVs

In this section we briefly review some of the important institutional background for understanding SPVs and their relation to their sponsor.

12.2.1 Legal Form of the SPV

A special purpose vehicles or special purpose entiry is a legal entity that has been set up for a specific, limited purpose by another entity, the sponsoring firm.  An SPV can take the form of a corporation, trust, partnership, or a limited liability company.  The SPV may be a subsidiary of the sponsoring firm, or it many an orphan SPV, one that is not consolidated with the sponsoring firm for tax, accounting, or legal purposes (or may be consolidated for some purposes but not others).

   In securitization, the SPV most commonly takes the legal form of a trust. A trust is a legal construct in which a fiduciary relationship is created with respect to some property.  A trustee then has duties to perform for the benefit of third party beneficiaries.  See Restatement (Third) of Trusts.  Often the SPV is a charitable or purpose trust.  These traditional trusts have been transformed into a vehicle with a different economic substance than what was perhaps contemplated by the law.  These transformed trustsㅡcommercial trustsㅡare very different from the traditional trusts (see Schwarcz 2003a, Langbein 1997, and Sitkoff 2003).

   A purpose trust (called a STAR trust in the Cayman Islands) is a trust set up to fulfill specific purposes rather than for beneficiaries.  A charitable trust has charities as the beneficiaries.  For many transactions there are benefits if the SPV is domiciled offshore, usually in Bermuda, the Cayman Islands, or the British Virgin Islands.


12.2.2  Accounting

A key question for an SPV (from the point of view of SPV sponsors, if not economists) is whether the SPV is off-balance sheet or not with respect to some other entity.  This is an accounting issue, which turns on the question of whether the transfer of receivables from the sponsor to the SPV is treated as a sale or a loan for accounting purposes.[n.7]  The requirements for the transfer to be treated as a sale, and hence receive off-balance sheet treatment, are set out in Financial Accounting Standard No. 140 (FAS 140), "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities," promulgated in September 2000.[n.8]  FAS 140 essentially has two broad requirements for a "true sale." First, the SPV must be qualifying SPV, and second, the sponsor must surrender control of the receivables.

   In response to Enron's demise, the Financial Accounting Standard Board(FASB) adopted FASB Interpretation No. 46 (FIN 46; revised December 2003), "Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin (ARB) No. 51," which has the aim of improving financial reporting and disclosure by companies with variable interest entities (VIEs). [n.9]  Basically, FASB's view is that the then-current accounting rules that determine whether an SPV should be consolidated were inadequate.  Because FASB had difficulty defining an SPV, it created the VIE concept.  FIN 46 sets forth a new measure of financial control, one based not on majority of voting rights, but instead on who holds the majority of the residual risk and obtains the majority of the benefits, or bothㅡindependent of voting power.

   A "qualifying" SPV (QSPV) is an SPV that meets the requirements set forth in FAS 140; otherwise, it is treated as a VIE in accordance with FIN 46.  FIN 46 doe not apply to QSPVs.  To be a qualifying SPV means that the vehicle: (1) is "demonstrably distinct" from the sponsor, (2) is significantly limited in its permitted activities, and these activities are entirely specified by the legal documents defining its existence, (3) holds only "passive" receivablesㅡthat is, there are no decisions to be made, and (4) has the right, if any, to sell or otherwise dispose of noncash receivables only in "automatic response" to the occurrence of certain events.  The term "demonstrably distinct," means that the sponsor cannot have the ability to unilaterally dissolve the SPV, and that at least 10% of the fair value (of its beneficial interests) must be held by unrelated third partes.

   On the second requirement of FAS 140, the important aspect of surrendering control is that the sponsor cannot retain effective control over the transferred assets through an ability to unilaterally cause the SPV to return specific assets (other than through a cleanup call or, to some extent, removal of account provisions).

   FAS 140 states that the sponsor need not include the debt of a qualifying SPV subsidiary in the sponsor's consolidated financial statements.

   A QSPV must be a separate and distinct legal entityㅡseparate and distinct, that is, from the sponsor (the sponsor does not consolidate the SPV for accounting reasons).  It must be an automation in the sense that there are no substantive decisions for it to ever make, simply rules that must be followed; it must be bankruptcy remote, meaning that the bankruptcy of the sponsor has no implications for the SPV, and the SPV itself must (as a practical matter) never be able to become bankrupt.


12.2.3  Bankruptcy

An essential feature of an SPV is that it be bankruptcy remote. This means that should the sponsoring firm enter a bankruptcy procedure, the firms creditors cannot seize the assets of the SPV.  It also means that the SPV itself can never become legally bankrupt.  The most straightforward way to achieve this would be for the SPV to waive its right to file a voluntary bankruptcy petition, but this is legally unenforceable (see Klee and Butler 2002, p. 33 ff.).  The only way to completely eliminate the risk of either voluntary or involuntary bankruptcy is to create the SPV in a legal form that is ineligible to be a debtor under the U.S. Bankruptcy Code.  The SPV can be structured to achieve this result.  As described by Klee and Butler: "The use of SPVs is simply a disguised form of bankruptcy waiver" (p. 34)

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12.2.4  Tax

There are two tax issues[n.10]  First, how is the SPV taxed?  Second, what are the tax implications of the SPV's debt for the sponsoring firm?  We briefly summarize the answers to these questions.

   The first question is easier to answer.  SPVs are usually structured to be tax neutral, that is, so that their profits are not taxed.  The failure to achieve tax neutrality would usually result in taxes being imposed once on the income of the sponsor and once again on the distributions from the SPV.  This "double tax" would most likely make SPVs unprofitable for the sponsor.  There are a number of ways to design an SPV to achieve tax neutrality.  We briefly review some of them.

   Many SPVs are incorporated in a tax haven jurisdiction, such as the Cayman Islands, where they are treated as "exempted companies."  See Ashman (2000).  An exempted company is not permitted to conduct business in, for example, the Cayman Islands, and in return is awarded a total tax holiday for 20 years, with the possibility of a ten-year extension.  Because such entities are not organized or created in the United States, they are not subject to U.S. federal income tax, except to the extent that their income arises from doing business in the United States.  However, the organizational documents for the SPV will limit it so that for purposes of the U.S. Internal Revenue Code of 1986, it can be construed as not being "engaged in U.S. trade or business."

   An investment trust that issues pass-through certificates is tax neutral; that is, the trust is ignored for tax purposesㅡthere is no taxation at the trust levelㅡand the certificate owners are subject to tax. ( ... ... )

   More common than pass-through structures are pay-through structures. Pay-through bonds are issued by SPVs that are corporations or owner trusts.  In these structures, the SPVs issue bonds, but this requires that there be a party that holds the residual risk, an equity holder.  If the SPV is a corporation, the the pay-through bonds have minimal tax at the corporate level because the SPV's taxable income or loss is the difference between the yields on its assets and the coupons on its pay-through bonds. Typically these are matched as closely as possible.

   The second question is more complicated.  Some SPVs achieve off-balance sheet status for accounting purposes but not for tax purposes. Securitizations can fit into this category because they can be treated as secured financing for tax purposes.


12.2.5  Credit enhancement

Because the SPV's business activities are constrained and its ability to incur debt is limited, it faces the risk of a shortfall of cash below what it is obligated to pay investors.  This chance is minimized via credit enhancement.  The most important form of credit enhancement occurs via tranching of the risk of loss due to default of the underlying borrower.  Tranching takes the form of a capital structure for the SPV, with some senior-rated tranches sold to investors in the capital markets (called A notes and B notes), a junior security (called a C note) which is typically privately placed, and various forms of equity-like claims.  Credit enhancement takes a variety of other forms as well, including over-collateralization, securities backed by a letter of credit, or a surety bond, or a tranche may be guaranteed by a monoline insurance company.  There may also be internal reserve funds that build-up and diminish based on various criteria.  We will review this in more detail later with respect to credit card securitization in particular.


12.2.6  The Use of Off-Balance Sheet Financing

Off–balance sheet financing is, by definition, excluded from the sponsor’s financial statement balance sheet, and so it is not systematically reported. Consequently, it is hard to say how extensive the use of SPVs has become. Qualified off–balance sheet SPVs that are used for asset securitization usually issue publicly rated debt, so there is more data about these vehicles. This data is presented and discussed in the following. SPVs that are not qualified, however, are hidden, as was revealed by the demise of Enron. Enron led to assertions that the use of off–balance sheet SPVs is extreme.[n.11] But, in fact, the extent of the use of SPVs is unknown.


12.3  Securitization

Securitization is one of the more visible forms of the use of off-balance sheet SPVs because securitization uses qualified SPVs and involves selling registered, rated securities in the capital markets.  Consequently, there is data available.  Our empirical work will concentrate on credit card receivables securitization.  In this section we briefly review the important features of securitization SPVs.


12.3.1  Overviews of Securitization

Securitization involves the following steps: (1) a sponsor or orginator of receivables sets up the bankruptcy-remote SPV, pools the receivables, and transfers them to the SPV as a true sale; (2) the cash flows are tranched into asset-backed securities, the most senior of which are rated and issued in the market; (3) the proceeds are used to purchase the receivables from the sponsor; (4) the pool revolves, in that over a period of time the principal rereived on the underlying receivables is used to purchase new receivables; and (5) there is a final amortization period, during which all payments received from the receivables are used to pay down traches principal amounts. ( ... ... )

   Figure 12.2 shows a schematic drawing of a typical securitization transaction.  The diagram shows the two key steps in the securitization process: pooling and tranching.  Pooling and tranching correspond to different types of risk. Pooling minimizes the potential adverse selection problem associated with the selection of the assets to be sold to the SPV.  Conditional on selection of the assets, tranching divides the risk of loss due to default based on seniority.  Since tranching is based on seniority, the risk of loss due to default of the underlying assets is stratified, with the residual risks borne by the sponsor.

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   Closely related to securitization is asset-backed commercial paper (ABCP).  Asset-backed commercial paper SPVs are called "conduits."  ABCP conduits are bankruptcy-remote SPVs that finance the purchase of receivables primarily through issuing commercial paper.  ( ... )

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