Sector developments and company hires

Securitisation tax consultation underway
The UK HMRC has launched a consultation seeking views on the taxation of securitisation companies. The UK government says it has identified - through ongoing dialogue with the industry - areas where it may be beneficial to make changes to such tax regulations and is therefore keen to explore the associated benefits and potential difficulties.

Specifically, the consultation is in connection with clarifying and/or reforming certain aspects of: the taxation of securitisation companies, as set out in the Taxation of Securitisation Companies Regulations (Statutory Instrument 2006/3296); and the stamp duty loan capital exemption (section 79 Finance Act 1986) as it applies to securitisations and ILS. The four areas of interest are: circumstances where an originator acquires more than 50% of the securities from the note-issuing company, possibly on a short-term basis (in other words, retained securitisations); what types of assets can be securitised; the operation of the note issuance threshold for the note-issuing company; and the application of stamp duty exemptions for loan capital to securitisation arrangements and to ILS arrangements.

The government says it would like to explore these issues to ensure that the UK’s tax code “keeps pace with the evolving nature of the capital markets” and contributes to maintaining the UK’s position as a leading financial services centre. In considering any changes, the government notes that it will continue to ensure that the relevant parts of the tax code are well targeted and minimise the risk of exploitation for tax avoidance.

The consultation will last until 3 June 2021 and the government expects to publish a summary of responses in the summer, which will include information on any next steps. It is envisaged that meetings with organisations with specialist interests will be held both during the consultation and after all responses have been evaluated.

In other news…

Loan forgiveness ‘positive’ for FFELP maturity risk
Student loan forgiveness would have a positive effect on FFELP student loan ABS trusts exposed to maturity risk, if it were passed into law and FFELP loans were ultimately included, Fitch says. Student loan forgiveness of any amount would generate a one-time prepayment that could reshape maturity risk for the most vulnerable trusts, as high levels of cashflow would - in most cases - pay down the senior-most bonds with the closest maturity dates.

President Biden last month indicated support for US$10,000 in student loan forgiveness (SCI 18 February). Other key provisions of any forgiveness programme remain undecided and will influence to what extent FFELP ABS are affected.

Fitch estimates that US$10,000 forgiveness could result in an average maximum prepayment of 57% of portfolio balance, but the impact will vary considerably based on average borrower indebtedness (ABI) and how many loans a borrower has across multiple trusts. Approximately 92% of Fitch-rated pools have an ABI over US$10,000, with an average ABI of US$20,601 for all transactions. While most trusts would remain outstanding with a US$10,000 prepayment, the reduction in pool levels could be significant.

If FFELP loans are excluded from loan forgiveness, the rating agency expects them to be increasingly consolidated into the federal direct loan (DL) programme, resulting in increased prepayments to FFELP trusts.