New Belgian Act On Covered Bonds And Rules On The Assignment Of Receivables
On 3 August 2012, the Belgian Parliament adopted long-awaited legislation on covered bonds (the "Covered Bonds Act")1 as well as an act on the use of receivables for financing purposes (the "Mobilisation Act").2 The new legislation is intended to level the playing field for Belgian credit institutions, compared to those in other EU countries, and facilitate the refinancing of credit institutions, whilst defining appropriate legal mechanisms to protect the holders of covered bonds.
The Covered Bonds Act provides a statutory framework for the licensing and supervision of the issuers of covered bonds, defines the rules applicable to the assets used to back the bonds, and provides for preferential treatment for the holders of Belgian covered bonds, while the Mobilisation Act resolves a number of important issues - most of which are specific to Belgian law - related to the use of receivables for financing purposes.
Covered bonds are typically issued by banks and backed by certain assets (such as mortgage loans or public sector loans). Even if the performance of the underlying asset is insufficient, the issuer (or originator) must still repay the bond in full, which makes this product attractive to both investors (who benefit from high-quality debt) and issuers (which benefit from stable, low-cost financing) alike.
Belgian covered bonds - "on balance sheet" structure
The Covered Bonds Act adopts a fully "on balance sheet" approach (as is the case in Germany and France), without the use of a special purpose issuing vehicle: the assets covering the bonds are segregated on the originator's balance sheet. The Covered Bonds Act, however, also allows a credit institution to transfer eligible assets to another dedicated credit institution (either a subsidiary or an unrelated party), which in turn issues the covered bonds.
Belgian covered bonds may only be issued by a credit institution that is established in Belgium. The prior authorisation of the competent supervisory authority, namely the National Bank of Belgium ("NBB"), is required in order for a credit institution to become an issuer of Belgian covered bonds and for each issuance of such bonds. Once licensed, the issuer and each issuance of covered bonds are included on lists posted on the NBB's website. In order to be authorised by the NBB, the credit institution must demonstrate that it is able to issue and manage Belgian covered bonds, in terms of strategy, liquidity, organisation, management, audit and reporting of the assets. In addition, on...
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