On 5 August 2015, the President of the Republic of Poland signed an amendment to the Act of 29 August 1997 on Covered Bonds and Mortgage Banks and relevant laws (the “Amendment”). These brand-new changes will certainly come into force on 1 January 2016.
The primary objective of the Amendment is to enhance the accessibility of well-diversified funding sources from capital market financiers to the Polish banking sector. While Poland has actually had covered bonds because 1997, tax treatment and limitations on pension fund investments in these securities has limited their usage. These new regulations turn Polish covered bonds into high quality instruments, appealing to worldwide investors and giving Polish pension funds a sensible option for putting their funds into well-secured, low threat financial investments.
Polish lawmakers felt that this objective could be accomplished by altering the just recently adopted Restructuring Law of 15 May 2015 to the degree that it relates to covered bond issuers, ie home mortgage banks.
The Modification excludes home loan banks from the provisions of the Restructuring Law. Instead, modifications are made to the Bankruptcy Law of 28 February 2003, bankruptcy proceedings of home mortgage banks. These new regulations under the Bankruptcy Law are intended to make sure proper fulfillment of the claims associating with covered bonds in the eventin case of bankruptcy.
A few of the unique functions presented by the Amendment for the bankruptcy proceedings of home mortgage banks are briefly noted below.
Upon the announcement of a home mortgage bank’s bankruptcy, the due dates of its obligations to the holders of the covered bonds are extended by YEAR.
A separate bankruptcy estate (which will be used for satisfying the claims of covered bond holders) has actually been presented. The different bankruptcy estate shall consist in particular of: (i) the home mortgage bank’s receivables enteredparticipated in the covered bonds sign up; (ii) the funds acquired as a result of repayment of claims enteredparticipated in the covered bonds register; and (iii) the possessions gotten in exchange for the assets got in into the covered bonds sign up.
A brand-new institution, the covered bonds holders’ assembly, has been introduced. This covered bonds holders’ assembly may choose – to the level allowed by law – about the kind of bankruptcy procedure which will be implemented in any certain case.
The composition procedures (presented by the brand-new Restructuring Law of 15 May 2015) shall not apply to home loan banks.
However, the Modification devotes most interestfocus on the tests that must be performed by the insolvency administrator. The results of those tests suggest which type of bankruptcy procedures will certainly be selected. The screening treatment is based upon the following concepts. For the purposes of bankruptcy procedures versus a home loan bank, the bankruptcy administrator have to without delay (not later onbehind within 3 months from the date of the statement of bankruptcy of a home loan bank) carry out an asset coverage test on the bankruptcy estate.
The property protection tests ought to also be broughtperformed at least every 6 months throughout the bankruptcy procedures. The possession protection test includes verifying whether the debtor’s assets enable full payment to the covered bond holders.
If the result of this test is favorable, the liquidity test is then conducted. More liquidity tests should be carriedperformed a minimum of every 3 months during the bankruptcy proceedings. The liquidity test consists of validating whether the debtor’s properties allow complete repayment to the covered bond holders within the extended maturity dates.
The property coverage test and liquidity test outcomes are thought about positive if the separate bankruptcy estate is enough for complete fulfillment of the covered bond holders’ claims.
The results of the tests will be supplied to the Polish Financial Guidance Authority and the judge – commissioner.
When it come to positive asset coverage and liquidity tests: (i) the covered bond holders’ claims are satisfied in accordance with the terms of issuance; and (ii) the bankruptcy administrator might conclude brand-new contracts concerning the monetary instruments. Nevertheless, in such a case, the covered bond holders’ assembly might embrace a resolution obliging the insolvency administrator to do something about it aimedtargeted at selling all the claims and rights in the different bankruptcy estate. If such a resolution is adopted, the covered bond creditors will be repaid before the extended maturity date.
In the case of an unfavorable liquidity test, the “pass – through” procedure will apply. It implies that: (i) the payment of the nominal value of the covered bonds shall be extended by 3 years from the newest due date of the claim entered into the covered bonds register; and (ii) generally, the payment of the nominal value of the covered bonds may be satisfied earlier than throughout extended durations of maturity. Also, the covered bond holders’ assembly may embrace a resolution on non-implementation of the “pass – through” treatment if the assembly agrees to liquidate the separate bankruptcy estate and sell the home on the covered bonds sign up. The “pass – through” procedure is based on the designs that already operate in other European countries and is intendedfocuseded on avoiding the adverse effects of immediate liquidation of the bankruptcy estate of a mortgage bank. This treatment should assist to prevent the unfavorable results of a sudden sell-off of assets and optimize the realisations.
If the asset protection test has an unfavorable result, the insolvency administrator does not conduct the liquidity test and the “pass – through” procedure is carried out. The covered bond holders’ assembly may however embrace a resolution on liquidation of the separate bankruptcy estate and sale of the building on the covered bonds register. If such resolution is embraced, the insolvency administrator will certainly start the liquidation of possessions in accordance with the procedure described in detail in the Amendment.
The Modification represents an effort to defense of the interests of lenders in the event of bankruptcy of the covered bonds issuer. Passage of this legislation need to enhance the security of covered bonds in Poland, making it possible for the bonds to obtain greater scores and drawing in more global investors.…