October 2, 2022

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The evolution of Swiss structured covered bonds

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At the close of 2021, a new Swiss cash industry instrument was successfully launched: a bond issued by a Swiss car leasing business backed by a pool of lease receivables and leased cars and trucks. This transaction was a primer in Switzerland and Europe, but also a sensible following step in the evolution of Swiss structured covered bonds.

Switzerland does not have a legislative framework for the issuance of structured protected bonds. As these kinds of, Swiss protected bonds do not necessarily correspond to the common definition of protected bonds established out in the legislative framework of the EU for the issuance of coated bonds but may perhaps, based on its characteristics, be classified of secured notes in the European terminology.

Swiss structured protected bonds have been in existence for a whilst and are centered on contract law and designed to replicate worldwide market standards. The initial Swiss structured included bonds ended up issued far more than 10 decades in the past by the British isles branch (or an additional non-Swiss department) of the two Swiss GSIBs into the worldwide marketplace.

To a appreciable extent, such Swiss structured global lined bonds had been crafted on capabilities developed in the context of lined bonds structured underneath English regulation (which include a Uk trustee idea), but the resulting structure was personalized to replicate distinct Swiss authorized, regulatory, tax and insolvency regulation areas.

Starting off in 2017, Swiss banking companies designed purely Swiss legislation governed protected bond buildings for the Swiss market with a listing on the Swiss securities exchange Six Swiss Trade. Swiss banking institutions replicate standard English legislation features of protected bonds below Swiss law, enabling the coated bonds to be assigned a triple-A rating. Until finally recently, Swiss structured included bonds ended up exclusively issued by Swiss banking institutions with a portfolio of home finance loan belongings as deal with pool. This improved at the conclusion of 2021.

On November 10 2021, the initially Swiss structured coated bond was introduced wherever the issuer is not a Swiss bank and the address pool does not comprise of mortgages.

AMAG, Swiss most significant mobility group, has created a new structure for the issuance of included bonds that are indirectly backed by a portfolio of lease belongings. AMAG’s automobile-covered bond programme is utilizing standard strategies of the contractual structured protected bond format used by Swiss financial institutions but makes use of a unique variety of asset pool to again the bonds.

The issuer under the programme is AMAG Leasing, the top car or truck leasing corporation in Switzerland with a portfolio presently comprising of somewhere around 180,000 car or truck lease contracts valued at a lot more than CHF 4 billion. These lease contracts and the respective lease receivables and leased autos are applied to fund the go over pool for the bonds.

The scenario for corporate protected bonds

Regardless of the terminology, corporate covered bond programmes current the pursuing benefits over classic senior coporate bonds and Stomach muscles transactions:

  • Dual recourse structure backed by a segregated cover pool
  • In the current scenario, funding prices ended up significantly reduced when compared to a senior bond and an Stomach muscles (pushed by a greater hunger from investors who do ordinarily not devote in an Ab muscles issuances owing to inner or regulatory constraints)
  • The programme permits the issuer to technique the industry within just a short timeframe
  • The issuance quantity can be picked freely dependent on investor need, which will allow the issuer to adjust the supplying size to market place appetit
  • Reduced supplemental expenditures for follow-on transactions make scaled-down issuance volumes economically desirable
  • A person include pool serves all fantastic automobile covered bonds and
  • Extensive-time period routine maintenance fees are reduce in contrast to Stomach muscles.

The ALAG automobile protected bond programme

AMAG Leasing’s automobile included bond programme is documented on the basis of a Swiss based mostly prospectus. The base prospectus is accredited by the Six Trade Regulation as Reviewing System less than the Swiss Monetary Products and services Act and is legitimate for 12 months for Swiss community offerings and listings and trading admission on Six Swiss Exchange.

The programme enables AMAG Leasing to situation an vehicle-lined bond with a quite short time to industry. This provides higher flexibility for AMAG Leasing’s funding demands allowing for AMAG Leasing to entry the sector at any time pretty immediately.

Essential structural features of the vehicle lined bond programme

The critical things of vehicle protected bonds issued by AMAG Leasing can be summarised as follows:

  • The organization difficulties covered bonds as immediate, unconditional and unsubordinated obligations of the company.
  • The obligations of the issuer below the included bonds are confirmed in favour of the bondholders by a subsidiary of the issuer, which issues the guarantee underneath a guarantee mandate settlement with the issuer. Such subsidiary guarantor is integrated as a unique goal car. The only function of the subsidiary guarantor is to guarantee bonds issued by its mothers and fathers and to get specific lease property as security in relationship with the challenge of the bonds it ensures. In purchase to greatly enhance the personal bankruptcy remoteness of the guarantor, recourse underneath the assurance will be confined to the accessible funds of the guarantor from time to time, subject matter to the applicable precedence of payments, the means of the guarantor to make payments below the assure will eventually rely on the transferred lease property and the substitute property assigned and transferred to the guarantor for protection needs.
  • Underneath the assure mandate settlement, all liabilities, prices and charges incurred by the subsidiary guarantor under or in connection with the guarantee will have to be reimbursed (or pre-funded appropriately) by the issuer.
  • As safety for the pertinent reimbursement and pre-funding promises of the subsidiary guarantor against the issuer, a protect pool is produced by the issuer transferring lease assets to the guarantor. Such transfer is for protection uses only and the ‘risk and rewards’ in regard of the transferred lease belongings keep on being with the issuer as stability supplier.
  • Conditional move-via: Failure to redeem a certain collection of protected bonds when due does not set off default of the issuer as extensive as the applicable checks (in distinct, the amortisation examination) are nevertheless fulfilled. In its place, the affected included bonds would go into move-by method, therefore averting a condition wherever the guarantor would have to liquidate the cover pool property underneath significant time constraints.

Based mostly on the classic included bond strategy of twin recourse, bondholders will seem to the issuer for payment beneath the vehicle covered bonds. If the issuer fails to shell out, the promise can be drawn and bondholders can make a payment assert versus the guarantor.

In purchase for the guarantor to be ready to make payments below the assurance, it will make a respective payment claim for pre-funding versus the issuer less than the assure mandate agreement.

If the issuer fails to make payment to the guarantor under the promise mandate arrangement, the guarantor has the ideal to implement its protection curiosity in the lease property comprised in the protect pool and use the enforcement proceeds to fulfill its payment obligations underneath the ensure. In circumstance the proceeds from an enforcement of the deal with pool were not sufficient to completely fulfill the bondholders claim underneath the vehicle lined bond, bondholders would be left with a claim towards the bankruptcy estate of the issuer of the lined bond.

The dual recourse is also a vital variation to an Stomach muscles (asset-backed securities) transaction wherever the investors just have a assert against the specific goal motor vehicle issuing the Ab muscles. Another vital variance is the truth that underneath the lined bond programme, the go over pool assets are transferred from the issuer to the issuer by way of stability as opposed to a ‘true sale’.

The go over pool

Even though we have witnessed Ab muscles transactions in Switzerland employing a protect pool consisting of motor vehicle lease belongings, the dual recourse structure of a protected bond has so far only been made use of by Swiss banks making use of a cover pool of mortgages. AMAG’s car lined bond is the 1st Swiss twin recourse structure applying a cover pool consisting of motor vehicle lease property. The cover pool utilised by AMAG consists of the exact same kind of belongings AMAG has been making use of for its Abdominal muscles transactions.

The vital things of the include pool is that it is made up of assets that meet certain eligibility conditions and are repeatedly originated and that these assets are segregated from the issuer also in an insolvency of the issuer. The key assets of the car included bond include pool are the regular lease receivables payable by the lessees and the cars being leased to the lessees by AMAG Leasing as operator thereof.

The every month lease receivables arising below the lease agreements are silently assigned for safety needs by the originator to the guarantor. These types of assignment is not disclosed to lessees and the dollars flows associated to the transferred lease receivables will go on to be obtained and gathered by AMAG Leasing.


“With the new car lined bond programme, AMAG Leasing has established a credit card debt instrument that is investable to a larger universe of traders.”


Only on the incidence of an issuer celebration of default under the car protected bonds will the lessees be notified of the assignment and instructed to make payment right to the guarantor. Payments made to AMAG Leasing at a time when AMAG Leasing is bancrupt will slide into the personal bankruptcy estate and no for a longer period be component of the go over pool and be secured by the stability granted by AMAG Leasing, unless of course the lessees have been provided detect prior to producing a payment. As a result, it is essential that observe to lessees is timely built by the guarantor in buy to stay clear of that payments are built to AMAG Leasing.

The transfer of the leased vehicles from AMAG Leasing to the guarantors is structured as a transfer of legal title for protection purposes beneath Swiss regulation. In order to great this kind of transfer of legal title it is vital that the lessees are educated that they are holding the leased motor vehicle for the benefit of the guarantor alternatively than AMAG Leasing.

Any these information to lessees might be crucial for the ongoing business enterprise of the originator of the property being transferred to a include pool. As a result, any interaction to lessees of leased vehicles getting transferred to the deal with pool wants to be thoroughly designed to prevent any disruption of the originator’s organization.

In get to build thorough offer not only the lease receivables and leased auto are transferred to the deal with pool but also the respective lease agreements and seller agreements related to the leased autos as very well as all statements and receivables beneath or in connection therewith (including claims arising from this sort of lease and supplier agreements and any other linked promises).

The transfer of the relevant lease agreements and seller agreements from the originator to the guarantor outcome in a transform of get together. The guarantor replaces AMAG Leasing as a bash to the agreements and gets the lessor beneath the appropriate transferred lease agreements and the purchaser under the suitable transferred vendor agreements.

As a result, to the extent the lessees would have a declare from the lessor underneath the transferred lease agreements or transferred dealer agreements, the guarantor would be liable for these types of declare. Thus, when structuring the automobile covered bond it was important to guarantee that lessees do not have any statements that could crop up over the program of the term of the lease.

Past but not the very least, it is necessary that the typical lease settlement and seller settlement explicitly let for a unilateral transfer of the lease agreement and the supplier arrangement and any receivables / claims thereunder.

The future of Swiss company coated bonds

AMAG Leasing was in a position to value the 3.25 a long time inaugural vehicle covered bond with a destructive generate of -.2%. Even with the deficiency of a positive produce, the maximum possible situation dimension was two moments oversubscribed.

With the new car protected bond programme, AMAG Leasing has produced a financial debt instrument that is investable to a more substantial universe of investors. The first auto lined bond gained a ton of interest in and exterior of Switzerland and it is found by a lot of as the door opener for other corporate coated bonds.


Daniel Haeberli
Partner, Homburger
T: +41 43 222 16 33
E: [email protected]
W: www.homburger.ch

Daniel Haeberli is a companion at Homburger.

Daniel is in the banking and finance as effectively as in the funds markets workforce. His regions of abilities contain derivatives, structured products and solutions and bonds as well as syndicated credit card debt financing and monetary restructurings. Daniel is also the co-head of Homburger’s TechGroup and often advises purchasers on blockchain relevant tasks.

Daniel has a master’s degree in legislation from the University of Zurich and a LLM in company legislation from the New York College College of Regulation. He is mandated by the Swiss Structured Items Association SSPA as Director of Legal & Regulation and a member of the Appeals Board of the Swiss exchange BX Swiss.


Stefan Kramer
Lover, Homburger
T: +41 43 222 16 35
E: [email protected]
W: www.homburger.ch

Stefan Kramer is a companion in Homburger’s banking and finance group as perfectly as in the firm’s tech team.

Stefan on a regular basis advises on asset-dependent financings (covered bonds and securitisations), banking regulation (together with regulatory cash transactions) and derivatives marketplaces regulations. Other areas of operate consist of DLT-primarily based and crypto-linked issuance structures and money marketplaces infrastructures.

Stefan is a graduate of, and holds a PhD from, the University of Zurich and has done a LLM at Harvard Legislation Faculty.

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