Retention obligations

An alternative investment fund (“AIF”) managed by an alternative investment fund manager (“AIFM”) pursuant to Directive (EU) 61/2011, is set up to disburse loans to be subsequently securitised. According to Regulation (EU) 2402/2017 (hereinafter, the “Securitisation Regulation”), we believe that the AIFM and the AIF could fall within the definitions of, respectively, “originator” and “original lender”. According to Article 6(1) of the Securitisation Regulation the retention obligation can be fulfilled by either the originator, the original lender or the sponsor (if there is one) of a securitisation: in the above mentioned securitisation, can the retention obligation be therefore assumed alternatively by (i) the AIF as original lender, using the funds made available to it by investors or (ii) the AIFM as originator, using its own funds (i.e. not those of the AIF it manages)?

Article 6 of the Securitisation Regulation constitutes a safeguard (in addition to, notably, the criteria for credit-granting and disclosure requirements) against the “originate to distribute” model which was common prior to the 2008 financial crisis. Indeed, according to Article 6 of the Securitisation Regulation the originator, sponsor or original lender of a securitisation shall retain on an ongoing basis a material net economic interest in the securitisation of not less than 5% and, where the originator, sponsor or original lender have not agreed between them who will retain the material net economic interest, the originator shall retain the material net economic interest. In the structure described in the question, the AIFM would fall within the definition of originator. However, since the AIF (who is the entity that effectively originates the securitised exposures) is the “entity which, itself or through related entities, directly or indirectly, concluded the original agreement which created the obligations or potential obligations of the debtor or potential debtor giving rise to the exposures being securitised” (this being the definition of “original lender” under the Securitisation Regulation), it would fall within the definition of original lender. As a consequence the retention obligation could be assumed by either the AIF (with the funds received from its investors) or the AIFM (with its own funds) and shall be assumed necessarily by the AIFM only if no different agreement is reached among the parties.