Article 152Supplement v1, p. 152

COMMERCIAL LAWS SUPPLEMENT

PURPOSE EXEMPTIONS FROM THE OPERATION OF

CERTAIN LAWS

Be

it

enacted

by

the

Senate

and

House

of

Representatives

of

the

Philippines

in

Congress

assembled :

ARTICLE 1 GENERAL PROVISIONS

SECTION 1. Short Title . - This Act shall be known as "The

Securitization Act of 2004".

SECTION 2. Declaration of Policy . - It is the policy of the

State to promote the development of the capital market

by supporting securitizaiton, by providing a legal and

regulatory framework for securitization and by creating a

favorable

market

environment

for

a

range

of

asset-backed securities. For this purpose, the State shall

rationalize the rules, regulations, and laws that impact

upon the securitization process, particularly on matters of

taxation

and

sale

of

real

estate

on

installment.

Furthermore, the State shall pursue the development of a

secondary

market,

particularly

for

residential

mortgage-backed securities and other housing-related

financial

instruments,

as

essential

to

its

goal

of

generating investment and accelerating the growth of

the housing finance sector, especially for socialized and

low-income housing. The State shall likewise pursue the

development of a secondary market for other types of

asset-backed securities (ABS).

SECTION 3. Definition of Terms . - For purpose of this Act,

the term:

(a) "Securitization" means the process by which assets are

sold on a without recourse basis by the Seller to a Special

Purpose Entity (SPE) and the issuance of asset-backed

securities (ABS) by the SPE which depend, for their

payment, on the cash flow from the assets so sold and in

accordance with the Plan.

(b) Asset-backed securities (ABS)" refer to the certificates

issued by an SPE, the repayment of which shall be

derived from the cash flow of the assets in accordance

with the Plan.

(c)

"Assets",

whether

used

alone

or

in

the

term

"Asset-backed securities," refer to loans or receivables or

other similar financial assets with an expected cash

payment stream. The term "Assets" shall include, but shall

not be limited to, receivables, mortgage loans and other

debt instruments: Provided , That receivables that are to

arise in the future and other receivables of similar nature

shall

be

subject

to

approval

by

the Securities and

Exchange Commission (SEC) or the Bangko Sentral ng

Pilipinas (BSP), as the case may be: Provided , further , That

the term "Assets" shall exclude receivables from future

expectation of revenues by government, national or local,

arising from royalties, fees or imposts.

(d)

"Asset

Pool"

means

the

group

of

identified,

homogeneous assets underlying the ABS.

(e) "Commission" refers to the Securities and Exchange

Commission (SEC).

(f) "Credit Enhancement" means any legally enforceable

scheme intended to improve the marketability of the ABS

and increase the probability that the holders of the ABS

receive payment of amounts due them under the ABS in

accordance with the Plan.

(g) "Originator" means the person or entity which was the

original obligee of the Assets, such as financial institution

that grants a loan or a corporation in the books of which

the Assets were created in accordance with the Plan.

(h) "Plan" means the plan for securitizations as approved

by the Commission

(i)

"Secondary Mortgage Institution (SMI)" means an

entity created for the purpose of enhancing a secondary

market for residential mortgages and housing-related

ABS.

(j) "Seller" means the person or entity which conveys to

the SPE the Assets forming the Asset Pool in accordance

with the Plan. In most instances, the Seller may itself be

the Originator.

(k) "Servicer" refers to the entity designated by the SPE to

collect and record payments received on the assets, to

remit such collections to the SPE, and perform such other

services as may be specifically required by the SPE,

excluding asset management or administration.

(l) "Special Purpose Entity (SPE)" means either a Special

Purpose Corporation (SPC) or a Special Purpose Trust

(SPT).

(m)

"Special

Purpose

Corporation (SPC)" refers to a

juridical

person

created

in

accordance

with

the

Corporation Code of the Philippine solely for the purpose

of securitization and to which the Seller makes a true and

absolute sale of assets.

(n)

"Special

Purpose

Trust

(SPT)"

means

a

trust

administered by an entity duly licensed to perform trust

functions under the General Banking Law, and created

solely for the purpose of securities and to which the Seller

makes a true and absolute sale of assets

SECTION

4.

Declaration

of

Principles .

-

The

Commissions shall exercise the powers provided for in

this Act in consonance with the principle of full disclosure,

transparency and accountability. The Commission shall

include in its annual report the list of SPEs with the

corresponding types and amounts of assets scrutinized.

ARTICLE II SPECIAL PURPOSE ENTITY

SECTION 5. Special Purpose Entity (SPE) . - The SPE in

the

form

of

an

SPC

shall

be

a

stock

corporation

established in accordance with the Corporation Code of

the

Philippines

and

the

rules

promulgated

by

the

Commission solely for the purpose of securitization and

registered

as

such

with

the

Commission.

An

SPE

constituted as an SPT shall be a trust administered by an

entity duly licensed to perform trust functions under the

General Banking Law and need not be registered as such

with the Commission. In any event, the SPE, whether in

the form of an SPT or SPC, shall be solely organized and

operated for purposes of securitization in accordance

with this Act. The Commission and the BSP shall, from

time to time, determine the required capitalization for

the SPCs and SPTs, respectively.

SECTION

6.

Approval

of

the

Plan .

-

After

the

establishment of an SPE pursuant to Section 5 hereof, the

proposed Plan shall be submitted to the Commission for

approval, which shall include the following:

(a) The nature and mechanics of the sale of assets from

the Seller to the SPE, including the terms, conditions and

circumstances specified in the Plan wherein the assets

may be reverted to the Seller:

(b) The credit enhancements or liquidity supports for the

ABS which may be provided in the following manner:

(i) standby letter of credit issued by a commercial bank or

universal

bank

other

than the trustee bank or the

Originator or Seller or its subsidiary/affiliate, its parent

company or the parent company's subsidiary/affiliate;

(ii) surety bond issued by any insurance company other

than the Originator or Seller or its subsidiary or affiliate,

its parent company or the parent company's subsidiary or

affiliate, or the parent or subsidiary of the trustee bank;

(iii)

guarantee

issued

by

any entity other than the

Originator or Seller or its subsidiary/affiliate, its parent

company or the parent company's subsidiary/affiliate, or

the trustee bank or its parent or subsidiary;

(iv) over-collateralization provided by the Seller wherein

the assets conveyed to the SPC or SPT exceed the

amount of ABS to be issued;

(v) subordinated securities issued by an SPE to any entity

including

those

issued

to the Seller that are lower

ranking, or junior to other obligation, and are paid after

claims to holders of senior are satisfied; and

© Compiled by RGL

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