The CMB, following the registration of the first ever offering of asset covered bonds (the "ACBs"), has revised the legal provisions governing ACBs. The filing made by Şekerbank T.A.Ş., an ISE traded Turkish deposit bank, for issuance of ACBs in the amount of TL 800,000,000 has granted the CMB a chance to review and fine tune the legal framework which has not been practiced since its promulgation in 2009. The recently issued Amendment has put a strong emphasis on investor protection and diversified the issuer base.

Below is a brief highlight of the key aspects of the Amendment:
  • Factoring companies are included in the list of entities that may issue ACBs and thus, have obtained an additional funding option for their activities. In line with the above, receivables arising from all type of factoring transactions has been classified as cover assets for ACB offerings conducted by factoring companies.
  • The Amendment has envisaged that cash flows arising from redemption of cover assets shall be deposited in the name of the investors with a separate bank account in case the issuer violates cover matching principles or fails to fulfill its obligations arising from ACBs. > The principle stating that the net present value ( the "NPV") of cover assets must at all times be at least 2% more than the NPV of the ACBs has been revised to reflect the risk of different types of cover assets. Under the new framework, the minimum positive difference between the NPVs of cover assets and of the ACBs has been increased to a range up to 8%-46% depending on the type of cover assets.  The Amendment also authorizes the CMB to revise these percentages where it deems necessary and thus create flexibility for adaptation to the changes in economic conditions.
  • he Amendment has paved way for the issuer to use cash derived from the redemption of cover assets, provided that the redeemed assets are replaced with new assets, cover matching principles are in no way violated and the issuer is not in failure to fulfill its obligations arising from ACBs.
  • The CMB is entitled to authorize Investor Protection Fund for conducting an administrative liquidation process (i.e. an accelerated and cost efficient way of liquidation) for a cover pool in the event that (i) the issuer fails to fulfill its obligations on due date, (ii) the value of issuer's liabilities exceeds the value of issuer's assets, (iii) the management control of the issuer is transferred to governmental authorities, (iv) operation license of the issuer is revoked, or (v) the issuer is suffering from bankruptcy
  • The Amendment, in line with the above defined revisions, have attributed new responsibilities to the cover monitor (i.e. independent audit company) which shall be appointed for the supervision of the cover register and cover pool.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.