Chantiers De L’Atlantique-Paqueboy Finance: An Original Securitization Transaction
May 2001
By:
Gilles Saint Marc (email: saintmarc@gide.fr), Gide
Loyrette Nouel (Paris)
Through the securitisation, Chantiers de l’Atlantique financed part of the cost of building three vessels ordered by Royal Caribbean Cruise Ltd (RCCL). Through Paquebot Finance, a fonds commun de créances (FCC) it securitised the receivables resulting from the sale of the three vessels to RCCL. To finance the purchase of the receivables, the FCC issued privately placed units, subscribed to almost entirely by Cruise Ship Finance Ltd., a Jersey vehicle. The vehicle was funded by the issuance of notes into the Euro and US markets. The proceeds from the notes allowed Cruise Ship to pay for the units issued by the FCC, and the FCC in turn to pay for the receivables transferred by Chantiers de l’Atlantique. There were two credit enhancement devices: a first demand guarantee issued by Alstom Holdings (Chantiers de l’Atlantique’s parent company), and a mortgage over each vessel in the process of being built. This deal was original for at least three reasons.
The transaction combined the advantages of using an FCC structure and an off-shore securitisation structure. The FCC allows certain objectives to be achieved that would not have been possible if only an off-shore securitisation structure had been used, at least not without the same ease or security.
Firstly, by transferring receivables to an FCC, Chantiers de l’Atlantique was certain to comply with the French Banking Act of January 24, 1984. French case law says that the transfer on a regular basis of unmatured receivables is a banking activity restricted to credit institutions. However, the French Banking Act provides an exemption for credit transactions between companies belonging to the same group. It is on this basis that off-shore securitisation transactions have been set up.
The originators transfer their receivables to an affiliated company, which is located in a jurisdiction, where the purchase of unmatured receivables is not considered to be a banking activity. The affiliated company then transfers the receivables to an off-shore SPV. By using this two-fold method, there is a risk that the transfer of the receivables to the affiliated company may be viewed as a way of circumventing the French Banking Act. However, this risk does not exist when an FCC is used since it was created by the legislator precisely for the purpose of acquiring unmatured receivables.
Secondly, the FCC provided investors with the certainty that the transfer of receivables would give rise to a ‘true sale’. This meant that there was no potential risk of a Chantiers de l’Atlantique bankruptcy judge recharacterising the transfer as a secured loan. Lastly, the FCC is a tax transparent vehicle (exempt from income tax and indirect taxation) and is considered by rating agencies to be bankruptcy remote. Investors were assured that the cash flow generated by the receivables transferred by the FCC would reach Cruise Ship without being affected in their substance.
Nevertheless, it was decided that the FCC would not issue its units directly onto the market but that they would be repackaged at the Cruise Ship level. Cruise Ship therefore subscribed to most of the units issued by the FCC and then issued notes in representation thereof. The idea was to offer investors notes to which they were accustomed to and to obtain good financing levels.
The other original aspect of this transaction was the nature of the receivables. The receivables securitised by Chantiers de l’Atlantique were not related to goods already manufactured and delivered at the date of their transfer, but to goods that were to be manufactured and delivered. Apart from assignment by means of a transfer form (bordereau) under the Dailly Act, only transfer by means of an FCC bordereau can be used to assign future receivables under French law. This again highlights the advantage of choosing the FCC structure.
The final important aspect was the implementation under French law (with necessary adjustments), of the Anglo-Saxon method of ‘step in’. So in the case of a specified event affecting the solvency of RCCL, the probability that the FCC would be paid the receivables by RCCL was remote. Therefore, it was no longer necessary to maintain the FCC and, on the contrary, it was desirable to bring the investors closer to the underlying assets that they financed. This is why the ownership of the vessels was transferred by Chantiers de l’Atlantique to Cruise Ship (step in) in return for payment by Cruise Ship of the price of the vessels. A mechanism allowed Cruise Ship to pay that price by offsetting the amount that was due to it by the FCC. The FCC was then wound-up and Cruise Ship was legally entitled to resell the vessels to third party purchasers.
_______________________________________________________________