Annex:
No. 1
No. 2

No. 3
What have securitization and specialized lending in common and what differentiates them?
(A) Both structures/schemes make use of special purpose vehicles, but : a. Specialised Lending: i. The purpose of the SPV is the acquisition/construction and possibly the exploitation and maintenance of a physical asset (specific or group of) ii. The SPV is not founded by financing institutions in order to provide financing services of any nature but by the equity provider involved in the realization of the underlying asset; iii. The SPV does not transfer any risk to other entities but is created in order to take and keep the risks inherent to the underlying asset; iv. The SPV generates own cashflows through its activity which is
“directly underpinned by movements of goods and services that support the real economy, thereby creating economic growth and job opportunities” (CRR Recital 73 –trade finance); v. The SPV can be fully compared with/ is a corporate start-up with a specific business purpose/sector and plan, whereas b. Securitization: i. The purpose of the SSPE (see (2) above) is limited to the activities appropriate to carrying out a securitization; ii. The SSPE does not generate own cashflow but only serves as vehicle acting as a conduit allowing the pass-through of cashflows from the original transaction into the servicing of the securitization structure. iii. The SSPE is founded as corporation trust or other entity by institutions aiming at isolating and transferring risks/obligations from their own books.
(B) Both structures / schemes show different tranches with possibly different seniority levels, but : a. Specialized Lending: i. The tranching of the original financing reflects the appropriate direct allocation of transaction specific risks within a scheme used to finance or operate physical assets towards the project parties who are best suitable for bearing the risk; ii. The financing only occurs after a comprehensive due diligence process in terms of technical, legal, insurance and commercial points and all parties involved are satisfied with the proposed risk allocation

b. and financing structure which they will take and hold. The due diligence process most often also includes requests and negotiations for adaptationsto the structure (technical, legal, commercial) of the physical asset, whereas b. Securitization: i. The level of seniority of each individual tranche is only determined by the readiness of the tranches below to absorb losses in case cashflows generated by the original transaction are not sufficient to satisfy all reward expectations (first loss tranche followed by a second loss tranche, etc…); ii. The purpose of the tranching and issuance of tranche related papers is to attract investors interested in investing in a specific class of risks and expecting a corresponding weighted financing reward (financial investors). iii. Generally the proceeds of paper issuance will be used to refinance/substitute the original financing of the physical asset or to create instant liquidity instead of waiting for the original obligors to pay
(trade receivables) ; iv. Whereas increasingly investors will conduct a due diligence process on the underlying assets, this due diligence does usually not reach the level of details required in specialized lending. Further more, the DD process has no impact on the origination process.
(C) Both structures / schemes entail and allocate risk, but: a. Specialized lending: i. The risk is inherent to the nature of the underlying business only ii. Exposure creates a direct payment obligation iii. Original lenders exercise permanent and considerable control of the underlying asset iv. Original lenders are in a position to influence the risks associated with the underlying asset and to propose and execute mitigation measures v. Typically specialized lending schemes will benefit from credit protection (funded and/or unfunded) within the meaning of Art.4
(58)&(59)
Securitization: i. The risk is transferred from the underlying business into the securitization scheme (through true sale or synthetic structure)

ii. The Investor cannot exercise influence on the original underlying asset. The investor can only monitor the appropriate distribution of losses according to the seniority waterfall iii. Typically securitization schemes will profit from credit enhancement within the meaning of Art.4 (65).