Dear friends and clients,

The ISA published a report intended to increase the legal certainty for entities that consider a public issuance of asset-backed bonds (“ABS”), by characterizing those securitization transactions that the ISA views as ‘simple’, and that are therefore more likely to be approved.

A securitization transaction is the issuance of debt certificates that are guaranteed by an expected and defined cash flow which derives from a credit portfolio (the “Underlying Assets“). The debt certificates are issued by a Special Purpose Vehicle (“SPV“), which holds the Underlying Assets, after they has been transferred to it by another corporation (the “Originator“), in return for the proceeds from the issuance of the debt certificates. The SPV is used in order to limit the credit risk entailed in the debt certificates to the credit risk of the Underlying Assets, and prevent exposure to the credit risk of the Originator. In order to ensure that the risks are properly separated, it is essential for the Underlying Assets to be legally and financially distinct from the Originator. The Underlying Assets serve as the sole source of debt service funds.

Securitization transactions create a more efficient distribution of risks in the financial markets, and provide additional sources of financing for the economy. The developing of the securitization market has two primary objectives:

1. Creating an attractive source of financing for local real economic activity, specifically for small and medium-sized firms – when securitization transactions take place in developed markets, credit-seeking individuals and entities may obtain credit at more attractive terms than are otherwise available.
2. Diversification and expansion of the investment and saving opportunities available for Israeli investors.

1. The report paves the way for issuers that are interested in making a public offering of ABSs, and improves legal certainty, by shedding light on the ISA’s expectations with respect to such public offerings, and by characterizing those securitization transactions that the ISA views as ‘simple’, and that are therefore more likely to be approved.
2. As such, and given that such offerings do not require an amendment to existing legislation, the report presents an immediate opportunity.
3. Notwithstanding the fact that existing legislation does not have to be amended in order to allow for public offerings of ABSs, the ISA is of the view that in order to further develop and improve the securitization market in Israel, it is advisable to create a suitable legislative framework in the fields of, taxation, regulation and accounting.