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Securitisation is a method of financing that uses cash flows derived from underlying assets as a means of repayment rather than the borrower’s general ability to repay.
A typical securitisation transaction involves assets being sold to a company that has been set up purely for the transaction. These assets are usually contractual rights to receive money from other entities such as mortgages, credit card debts, hire purchase contracts, football club revenues or music royalties. The company buying the assets normally funds itself by issuing debt securities to investors.
The seller of the assets, the investment bank arranging the transaction and other parties involved will usually each have separate legal counsel. Lawyers acting for the investment bank will draft the documentation, which is then reviewed by the other legal teams. It will often take a few drafts and rounds of comments before the documents are agreed and there will then be a closing of the transaction where the agreed documents are signed by all parties. Legal teams vary in size but will usually include at least one partner, associate and trainee. Transactions usually take between two and six months to complete, although particularly innovative or complex crossjurisdictional transactions can take up to two years.
Most of the legal work takes place in the lawyers' offices, with parties communicating via meetings and, more frequently, through conference calls and e-mail correspondence. If the transaction involves an international element meetings may take place overseas. Securitisation lawyers will occasionally work into the night or over a weekend but the work tends to be more predictable and less intense than in other areas of finance. The cutting-edge nature of the work more than makes up for occasional long hours and there are frequent social events with clients and opportunities to travel abroad due to the international nature of many transactions.
A lawyer working in securitisation will need analytical skills and creativity to draft documents and solve structural problems. Transactions vary and are often innovative, leading to a real sense of job satisfaction. The securitisation market is strong and has grown since its inception in the mid 1980s. It tends to remain strong through growth and recession as companies seek different and cheaper methods of financing. The buoyancy of the market means that good securitisation associates are usually very much in demand, and there is also scope for moving out of private practice and into investment banks as part of in-house legal teams.
The securitisation market has grown since its inception in the mid-1980s, although the financial crisis has inevitably had an impact. Nevertheless, securitisation remains an attractive method of financing for companies seeking to raise funds and securities can be used as collateral for banks wishing to borrow from central banks.
Trainees work closely with associates on each deal, often creating the first drafts of documentation and assisting with the review of documents. They will also liaise with listing authorities (which regulate bonds), research legal issues that arise and assist with closing the deal. Hours worked will usually be similar to those of associates.
REBECCA FORD is a senior associate with BAKER & MCKENZIE LLP. She graduated with a degree in economics and politics from the University of Bristol.
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