1. How active is the securitisation market in your jurisdiction? What types of securitisations are typical in terms of underlying assets and receivables?
The securitization market in Switzerland is currently characterized by a stable yet cautious environment, driven by both domestic and global economic and political factors. While in 2024 interest rates tended to fall, the current US administration is recently causing volatility on the markets. Therefore, despite the current low interest rate environment, investors remain cautious and beware of further developments. Besides, although supportive of lower borrowing costs, the currently rather low interest environment has compressed yields on many securitized products, making it challenging for investors to find attractive returns.
With investors facing the prospect of volatile markets risks, both supply and demand activities remain conservative. Swiss banks have generally maintained a cautious stance on lending in recent years, prioritizing conservative risk management practices amid global economic uncertainty. While they continue to offer lending products, including those tied to securitization, there is a noticeable focus on maintaining strong credit quality, especially in light of the current low interest rate environment and potential economic volatility. This conservative approach has made banks more selective in their lending activities, favoring stable and low-risk borrowers. At the same time, alternative financiers such as investment funds and other non-banks remain susceptible to liquidity, credit and leverage risks.
Due to the ongoing global crises, including geopolitical tensions and economic instability, ESG (Environmental, Social, and Governance) considerations have taken a backseat in the Swiss market, with investors and institutions shifting focus back to traditional, safer assets. The need for stability and protection against market volatility has driven demand for more conventional investment products, while the emphasis on sustainability has somewhat diminished in the short term.
The type of underlying assets and receivables typically include residential mortgage-backed securities, auto loan-backed securities, credit card receivables and trade receivables, with credit cards portfolios and auto lease forming in terms of size the main types of securitisation transactions. Contractual covered bond programs focusing on the Swiss market have been established within the last couple of years. Most of the issuances carried out in Switzerland are private placements, but some of these issuances are public and even listed.
2. What assets can be securitised (and are there assets which are prohibited from being securitised)?
To date, the most common financial assets that have been securitised are collateralised loan obligations, auto leases, credit card receivables and trade receivables. Theoretically, any type of asset, i.e., receivable can be securitised and there is no specific statute in Switzerland that would generally prohibit the securitisation of certain asset classes. From a conceptual point of view, all financial assets that are assignable or transferable and have a relatively predictable cash flow are eligible for securitisation. However, suitability considerations with regard to a specific type of assets also apply in Switzerland. In the future, sustainability considerations with regard to a specific type of assets may play a bigger role also in Swiss securitisation.
3. What legislation governs securitisation in your jurisdiction? Which types of transactions fall within the scope of this legislation?
As there is no specific securitisation law in Switzerland, the general Swiss legal framework is applicable. Regarding the transfer of assets from the originator to the Special Purpose Vehicle ("SPV"), the provisions of the Swiss Code of Obligations apply (in particular, the provisions regarding sale and assignment). For the establishment, management and organisation of a SPV in Switzerland, it is also the Swiss Code of Obligations that mainly provides the relevant legal framework and sets forth the requirements for establishing and organising the SPV, for the management's status and the shareholder's or quotaholders rights.
In addition, general capital market laws apply regarding the issuance of debt securities by Swiss SPVs. Furthermore, if debt securities are listed on a Swiss exchange, the listing rules of such exchange may become relevant. Asset-backed securities transactions may also be subject to the provisions of the Swiss Financial Services act ("FinSA"), in particular to the obligation to prepare a prospectus in case of public offerings.
4. Give a brief overview of the typical legal structures used in your jurisdiction for securitisations and key parties involved.
In Switzerland, securitisation transactions are structured as true-sale securitisations or synthetic securitisations.
As in other jurisdictions, the securitisation transaction is often initiated by the sponsor. The sponsor is often a bank that is responsible for originating and servicing the underlying assets. As such, the sponsor normally contributes the assets to an SPV or a multi-seller conduit and may continue to service the payments and customer relationship. The SPV in Switzerland is typically incorporated as a newly established Swiss corporation limited by shares (Aktiengesellschaft – AG) or limited liability company (Gesellschaft mit beschränkter Haftung – GmbH). Usually, the SPV would be a subsidiary or affiliate of the originator.
In a true-sale securitisation, the SPV as issuer buys the assets from the originator, therefore becoming the legal owner of the assets. In case of a synthetic securitisation transaction, the SPV only takes risk positions (for the structure, see further below). Either the SPV manages the assets by itself or delegates such management to a servicer, which is often identical to the originator. Servicers are mainly responsible for collecting the cash flows (in a timely manner) that are generated by the underlying assets and relaying them to the SPVs.
In order to finance the purchase of the assets, the SPV will issue asset-backed securities to investors. Investors provide funds to the SPV and effectively take the role of a lender to the SPV. By issuing different security tranches, the SPV tailors the tranches' risk-return profile to the risk tolerance of investors. Further key parties that may be involved in securitisation transactions are underwriters and placing agents. They are responsible for structuring the asset backed security, including the composition of tranches, credit and liquidity enhancements. Underwriters are also responsible for securities sales. If they buy the securities from the SPV to resell, they will also bear risks in relation to the transaction.
With regard to synthetic securitisation, the format used is the funded structure. In order to synthetically transfer credit risk, the originator (the protection buyer) usually enters into a credit default swap (CDS) with an SPV (the protection seller) and pays a risk premium to the SPV. The SPV issues credit-linked notes to investors and uses the proceeds of the issuance to purchase safe asset classes, such as government bonds (treasuries). The risk premium and the interest earned by the SPV on the safe-assets classes are used to service the investors' returns. In contrast to funded structures, only credit derivatives or guarantees are deployed in an unfunded synthetic structure.
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Originally published in the Legal 500.
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.
