Lebanon: Securitisation Comparative Guide

1 Legal and regulatory framework

1.1 Which laws typically govern securitisations in your jurisdiction?

The Securitisation Law (705/2005) sets out the legal framework governing asset securitisation in Lebanon.

The Capital Markets Law (161/2011) also includes provisions regulating securitisation transactions. Among other things, it mandates the Capital Markets Authority to regulate securitisation transactions under the Securitisation Law and issue implementing regulations in respect thereof.

1.2 Which bodies are responsible for regulating securitisations in your jurisdiction? What powers do they have?

Prior to the promulgation of the Capital Markets Law in 2011, the Central Bank of Lebanon was responsible for regulating and overseeing the operations of securitisation investment funds in Lebanon. For example, under the Securitisation Law, the Central Bank:

• granted prior approval for the establishment of a securitisation investment fund;
• approved the bylaws, and any amendments thereto, of securitisation investment funds; and
• issued regulatory decisions regarding the management of securitisation investment funds and the obligations of the persons entrusted with such management.

The prospectus of a securitisation investment fund also had to be submitted to the Central Bank for review and approval prior to publication. The Securitisation Law further empowered the Central Bank to issue regulatory decisions as and when needed, in particular regarding the rules and conditions that apply to securitisation transactions aimed at attracting funds from the public.

Since the promulgation of the Capital Markets Law in 2011, the board of the Capital Markets Authority has been vested with the powers previously granted to the Central Bank and has been responsible for regulating securitisations under the Securitisation Law.

1.3 What is the regulators' general approach in regulating securitisations?

The general approach is that securitisation transactions should be concluded in a manner that complies with the Securitisation Law and any implementing regulations issued in respect thereof.

1.4 What role, if any, does the central bank play in the securitisation market in your jurisdiction?

Prior to the promulgation of the Capital Markets Law in 2011, the Central Bank was responsible for authorising the establishment of securitisation investment funds and regulating and overseeing their operations. However, these powers are now vested in the board of the Capital Markets Authority following its establishment. The governor of the Central Bank is also chairman of the board of the Capital Markets Authority.

2 Market and motivations

2.1 How sophisticated is the securitisation market in your jurisdiction and how has it evolved thus far?

The most common types of securitisation transactions concluded in Lebanon relate to the sale by originators to securitisation investment funds of receivables (eg, trade receivables, promissory notes.).

2.2 In which industry sectors, if any, is securitisation most common in your jurisdiction? What major securitisations have been effected thus far?

Securitisation is most common in the automobile sector. A number of major car dealers in Lebanon have entered into auto loan securitisation transactions as originators and have sold to securitisation investment funds established for this purpose auto loan receivables along with their ancillary rights, such as car mortgage contracts executed with obligors and related insurance policies.

Securitisation transactions are also common in leasing operations. Also common are transactions whereby the underlying assets are trade receivables of companies operating in the pharma and healthcare sectors, or in the agribusiness sector.

2.3 What are the benefits of securitisation, for both originators and investors?

The main benefits of securitisation transactions for the originator include the following:

• The originator sells a portfolio of receivables to the securitisation investment fund for consideration which is duly paid at the time of the sale, and thereby receives immediate access to financing, as opposed to waiting for the obligors to settle their receivables on successive maturity dates.
• The credit risk of the obligors belonging to the portfolio is transferred to the securitisation investment fund and will no longer be carried by the originator, unless otherwise expressly agreed.
• The receivables will no longer appear on the balance sheet of the originator, unless otherwise agreed. The securitisation investment fund will thus have no recourse vis-à-vis the originator in the event of the insolvency of the obligors.
• The sale is a true sale, which is bankruptcy remote; there is no clawback risk if the originator is declared bankrupt.
• The securitisation is a means of financing that will not appear as a loan on the balance sheet of the originator.

For investors, subscribing to fund units is a form of investment that achieves a return from a fixed income security. To the extent that the investor is a bank, this investment allows it to extend financing to clients that would not typically fall within the regulatory lending limits. It is also a way to diversify lending risk, as the credit risk of the originator is replaced with the credit risk of other obligors belonging to the portfolio of receivables transferred to the securitisation investment fund.

2.4 What are the risks of securitisation, for both originators and investors?

For originators, securitisation structures can be a costly and administratively cumbersome avenue to obtain financing. Obligors may not always meet the eligibility criteria imposed by the securitisation investment fund; and the servicing requirements inposed by the fund may impose additional administrative hurdles on the originator.

As for investors, they will carry the credit risk of the reference portfolio purchased by the securitisation investment fund and typically will have no legal recourse vis-à-vis the originator in the event of default by the obligors.

2.5 Is there a developed covered bond market in your jurisdiction and how does it compare and compete with securitisation as means of disintermediation and recycling bank capital?

To the best of our knowledge, Lebanon does not have a well-developed covered bond market that competes with securitisation as a means of disintermediation and recycling bank capital.

2.6 To what extent does the government intervene as a state actor in securitisation (eg, by guaranteeing certain securitised assets, providing credit enhancement to impact transactions or sponsoring public bodies to act as originator of or investor in asset-backed securities issues)?

To the best of our knowledge, the Lebanese government does not intervene as a state actor in securitisation transactions in Lebanon, whether by guaranteeing certain securitised assets, providing credit enhancement or sponsoring public bodies to act as originator of or investor in asset-backed securities issues.

3 Structures

3.1 What securitisation structures are most commonly used in your jurisdiction?

Typically, a securitisation investment fund is established that issues two or more classes of notes: a senior note and a subordinated note. The senior note is subscribed to by investors and benefits from a yearly coupon payment as a fixed-income product. The subordinated note is held by the originator to cover potential losses in the reference portfolio, whereby the holder of the senior note will benefit from the loss protection provided by the subordination of the subordinated note. Subscription proceeds are used to finance the purchase of the portfolio of assets sold by the originator to the securitisation investment fund. This process can take place on a revolving basis, whereby additional assets that meet the relevant eligibility criteria are sold on subsequent dates to the securitisation investment fund during a revolving period.

3.2 What is the split between 'term' and asset-backed commercial paper transactions?

In general, securitisation transactions in Lebanon are asset backed by receivables and any ancillary rights connected to such receivables such as pledges, guarantees and insurance policies.

3.3 What are the advantages and disadvantages of these different types of structures?

Securitisation transactions in Lebanon generally have the structure described in question 3.1.

3.4 What other factors should originators consider when deciding on a structure?

In general, the primary factors to be considered by originators are:

• the cost of establishing and maintaining the securitisation structure as compared to the cost of borrowing and the impact that such borrowing may have on the balance sheet of the originator; and
• whether the originator is subject to any debt-to-equity restrictions or other similar covenants that would not allow it to borrow money. In this case, securitisation would be an attractive way to obtain financing for the originator.

4 Eligibility

4.1 What requirements and restrictions apply to prospective originators in your jurisdiction?

The Securitisation Law imposes no express requirements or restrictions on prospective originators.

4.2 What requirements and restrictions apply to prospective investors in your jurisdiction and how are retail and wholesale/professional investors distinguished?

The Securitisation Law distinguishes between restricted securitisation transactions and those offered to the public. Restricted transactions are not offered for subscription by the public. They are offered to, and subscribed by:

• banks;
• financial institutions;
• insurance and reinsurance companies;
• the Central Bank; and
• other authorised institutions.

A subscriber or purchaser of units or debentures under a restricted transaction generally may not transfer such units or debentures to entities other than those mentioned above.

Under general Capital Markets Authority regulations, 'clients' are defined follows:

1. a "customer" is a client who is not a "professional client" or "counterparty;"
2. a "professional client" is one of:
   
   1. a Lebanese collective investment scheme, pension fund or any other institution whose main activity is to invest in securities and financial products;
   2. a foreign investment fund or pension fund that is duly licensed in its home country;
   3. a government, government agency or public authority of any country;
   4. a joint stock company or an individual client that (x) has net investible assets equal to a value of at least US$500,000, and (y) has a minimum of 5 years of continuous experience investing in securities markets and investments.
3. A "counterparty" is either:
   
   1. an approved institution;
   2. an institution licensed by the Central Bank; or,
   3. a foreign financial services entity that is duly licensed in its home country to provide banking, securities or similar financial services to clients.

4.3 What requirements and restrictions apply to custodians and servicers in your jurisdiction?

The Securitisation Law provides that the custodian (eg, a bank or financial institution) is the institution with which the securitisation investment fund's assets are deposited. The custodian remains liable for the assets with which it has been entrusted, even if it disposes such assets, in whole or in part, with a third party.

The custodian must take all measures concerning the normal management of the securitisation investment fund's assets, and must:

• ensure that all operations concluded on behalf of the securitisation investment fund or its manager are consistent with the Securitisation Law and the regulations of the fund, and promptly notify the unitholders and the Capital Markets Authority of any violation thereof;
• execute the manager's instructions, unless they are inconsistent with the Securitisation Law or the regulations of the securitisation investment fund;
• ensure that it receives the consideration for the transactions carried out in respect of the assets of the securitisation investment fund, within the time limits prescribed in the fund's regulations; and
• ensure that the securitisation investment fund revenues are allocated as specified in the fund's regulations.

The Securitisation Law imposes no specific requirements or restrictions on servicers. From a practical standpoint, the originator is typically appointed as the servicer of the receivables under a servicing agreement which is entered into between the originator and the securitisation investment fund for an agreed servicing fee.

4.4 What classes of receivables and other assets may be securitised in your jurisdiction? What requirements and restrictions apply in this regard?

According to the Securitisation Law, securitisation transactions may entail the assignment of any type of asset – defined as any financial property, tangible or intangible, movable or immovable, which is part of the originator's financial estate, including receivables. 'Receivables' are defined as any type of debt due to the originator by natural or legal persons.

4.5 What measures, if any, have been taken in your jurisdiction to promote investor involvement in securitisations?

Other than certain tax exemptions provided for in the Securitisation Law, we are not aware of any specific measures that have been taken to promote investor involvement in securitisations.

5 Special purpose vehicles

5.1 What forms do special purpose vehicles (SPVs) typically take in your jurisdiction and how are they established?

Special purpose vehicles that are established under the Securitisation Law take on the form of a securitisation investment fund. Securitisation investment funds have no separate legal personality. They are considered as a separately allocated independent financial estate established solely for achieving the following objectives, through a manager that is appointed for this purpose:

• acquiring the assets to be transferred to the fund through the securitisation process, as well as any related credit enhancements and ancillary rights;
• issuing securitisation certificates representing co-ownership of the securitisation fund's estate or debentures that are, wholly or partly, backed by the estate; and
• paying to the originator the agreed consideration for the transfer of the acquired assets.

A securitisation investment fund is established and its regulations are imposed by its manager. The securitisation investment fund, its regulations and any amendments thereto are subject to the prior approval of the Capital Markets Authority.

Following the establishment of the securitisation investment fund, but prior to the issuance of the units or debentures, a prospectus must be prepared by the originator and the manager, as well as by the financial intermediary, if any. The prospectus must include a brief description of the principal components of the securitisation process. The prospectus must be submitted to the Capital Markets Authority for review and approval prior to publication, and must be handed to each subscriber.

The Securitisation Law also allows the establishment of Islamic Sharia-compliant securitisation investment funds.

5.2 Are SPVs typically established locally or offshore? What are the benefits and risks of each?

What are the benefits and risks of each?

Under the Securitisation Law, securitisation investment funds are established locally.

5.3 How is the SPV typically owned?

As mentioned in question 5.1, the estate of the securitisation investment fund is co-owned by the unitholders. Alternatively, debentures may be issued that are wholly or partly backed by the fund's estate.

The manager issues registered certificates or debentures, which represent a part or group of parts in the securitisation investment fund.

The securitisation investment fund may issue various senior and junior units which represent different rights within the securitisation fund's financial estate or components of this estate. In the same respect, debentures issued by a securitisation investment fund and their respective senior and junior classification may be backed by different components in the financial estate of the fund; these debentures may also represent different rights within these components.

5.4 What requirements and restrictions apply to SPVs in your jurisdiction?

Please see questions 5.1 to 5.3.

In addition, the financial estate of a securitisation investment fund may not be encumbered, in whole or in part, with any securities, except in the cases and pursuant to the conditions specified in the relevant fund's bylaws.

5.5 What requirements and restrictions apply to the directors of the SPV? What are their primary duties?

The management of a securitisation investment fund is entrusted to a manager, which must be an institution authorised to undertake such an activity, such as:

• an institution that specialises in the management of collective investment schemes in securities and other financial instruments that is established and operating in accordance with the general standards and regulations set by the regulator; or
• a bank or financial institution registered with the Lebanese regulator which has a separate department that specialises in the management of collective investment schemes in securities and other financial instruments.

The securitisation investment fund may not undertake any activity except through the manager, which may not in, its capacity as a manager, undertake any activity or commit to any debt, obligation or responsibility of any kind, except for:

• debts represented by debentures issued through securitisation operations, if any;
• responsibilities and obligations that may exist and arise from the nature of the assets acquired by the securitisation investment fund and those for which the securitisation fund is specifically liable for as set out in its regulations; and
• the administrative expenses set out in its regulations.

The manager is prohibited from:

• securitising its own assets;
• using the securitisation investment fund's assets for its own needs; or
• commingling its own investments with those of the securitisation investment fund.

The manager represents the securitisation investment fund before third parties and may institute legal proceedings to safeguard the rights and interests of the unitholders.

The manager must manage the securitisation investment fund in conformity with its bylaws, taking the interests of the unitholders exclusively into consideration.

The manager remains liable to the unitholders for any damage caused by an error or failure in fulfilling its obligations.

5.6 What measures can be implemented to ensure, as far as possible, the insolvency remoteness of the SPV?

A transfer of receivables that is carried out in accordance with the Securitisation Law will be deemed to be a true sale that may not be invalidated as a result of the insolvency or bankruptcy of the originator.

5.7 If the originator becomes insolvent, is there a risk that the assets of the SPV may be consolidated with its own by the courts? If so, how can this be mitigated?

Please see question 5.6.

6 Transfer of receivables

6.1 Can the transfer of receivables to the SPV be governed by laws other than your local law? If so, what laws are typically chosen?

As a general principle, Lebanese law recognises the sanctity of contracts and the Lebanese courts will usually uphold the terms of a contract to the extent that they do not violate public policy or laws of mandatory application in Lebanon. Accordingly, the law chosen by the parties will generally be upheld in Lebanon as the applicable law, to the extent that it does not contravene Lebanese public policy or mandatory laws and is selected in good faith.

However, it is recommended that Lebanese law be the law chosen to govern the transfer of the receivables, given that:

• the establishment of a securitisation investment fund in Lebanon is a regulated activity that is subject to the approval of the Capital Markets Authority in accordance with the Securitisation Law; and
• the law includes specific procedures and rules for the transfer of receivables.

In addition, while the Securitisation Law does not expressly prohibit the transfer of receivables from being governed by a foreign law, in the absence of court precedents, there are no assurances as to how a court would rule on the enforceability of a foreign law-governed asset transfer agreement under the Securitisation Law.

It has become common practice to choose Lebanese law to govern the transaction documents, but to allow for dispute resolution to take place outside of Lebanon, such as by submitting to the rules of arbitration of the International Chamber of Commerce.

6.2 What local law requirements (documentary and procedural) are required to ensure that foreign law documents are recognised and enforceable locally?

As a general principle, there are no local law requirements (documentary or procedural) to ensure that foreign law documents are recognised and enforceable in Lebanon, provided that there is no violation of public policy or rules of mandatory application in Lebanon. However, if a party wishes to enforce its rights against a contractual counterparty in the Lebanese courts:

• the documents must be translated into Arabic by a sworn public translator in order to be admissible in the courts of Lebanon;
• unless such documents are exempt, stamp duty should be paid in respect thereof; and
• court costs will be payable by the plaintiff in connection with legal proceedings brought in a Lebanese court and/or the enforcement of a court order.

6.3 How does the transfer of receivables from the originator to the SPV typically take place? What are the formal, documentary and procedural requirements for perfecting the transfer?

Under the Securitisation Law, the originator transfers receivables by solely executing a bordereau (list/schedule) that identifies the receivables, which is delivered to the manager and the custodian and is countersigned by them to acknowledge receipt. This transfers, by operation of law, the ownership of the receivables in a final manner to the estate of the securitisation investment fund. The transferred receivables are removed from the originator's financial estate and from its balance sheet. The originator may grant the transferee a right of recourse, in whole or in part, provided that this is clearly reflected in the originator's financial statements.

The transfer of receivables transfers to the account of the securitisation investment fund the securities attaching to the receivables of whatever kind, such as mortgages, guarantees or insurance policies.

The transfer becomes effective between the parties, and vis-à-vis the obligor, its successors in interest and third parties, on the date mentioned in the bordereau. The transferee takes the place of the transferor by operation of law as of this date, without any further procedure and without the need to notify or obtain the approval of the obligor, any security provider, guarantor or any other person.

The transfer of receivables is opposable to the creditor and to third parties, without informing or notifying the obligor. The originator must notify the transfer to the obligor by notice sent through ordinary pre-paid post to the address of the obligor stated in the initial debt contract.

6.4 What other requirements and restrictions apply to the transfer of receivables?

The bordereau must include at least the following mandatory information:

• the name of the contract, as a contract for the transfer of receivables through securitisation;
• a reference that the contract is subject to the Securitisation Law;
• the name and address of the originator, manager and custodian;
• the name of the securitisation investment fund;
• the date on which the Capital Markets Authority issued its approval for the establishment of the securitisation investment fund;
• a list of the receivables transferred, along with the elements that identify them and, in particular:
• • the name, address and trade name of the obligor;
  • the place of payment;
  • the value of the principal;
  • the maturity date and interest rate, if any; and
  • the nature and details pertaining to all related guarantees;
• the consideration to be paid by the manager for the transfer of the receivables as well as the date and method of payment; and,
• the available credit enhancements, if any.

The transfer of receivables does not include any guarantee of the obligor's solvency, unless otherwise stipulated by supplementary agreement.

6.5 Is there a doctrine under which a transaction describing itself as a sale can be recharacterised by the courts as a financing secured by assets which are the subject of the purported transfer? How can the application of this doctrine be overcome?

While Lebanese law generally recognises the sanctity of contracts and the will of the contracting parties, in the event of a dispute before the Lebanese courts, the judge has the authority to recharacterise a disputed transaction where this is deemed necessary. The judge may not, however, exercise this authority if the parties to the dispute have expressly agreed to limit the scope of the deliberations in the disputed matter put before the judge.

6.6 If the originator becomes insolvent, is there a risk that the transfer of receivables may be unwound? If so, how can this be mitigated?

A transfer of receivables concluded in accordance with the Securitisation Law may not be invalidated in the event of the cessation of payment, insolvency or bankruptcy of the originator. As such, in order to mitigate the risk of invalidating a transfer of receivables due to the insolvency of the originator, it is recommended to apply the procedures set out in the Securitisation Law to effect a transfer of receivables.

7 Security

7.1 What types of security interests can be taken over the assets of the SPV in your jurisdiction? Which are most commonly used?

The Securitisation Law does not specify the types of security interests that may be taken over the assets of a securitisation investment fund. However, the Securitisation Law does provide that the financial estate of a securitisation investment fund may only be encumbered, in whole or in part, with security in the cases and under the conditions provided for in its regulations.

7.2 What are the formal, documentary and procedural requirements for perfecting a security interest?

In general, to perfect a pledge on movable assets such as bearer securities, the movable asset must be:

• dispossessed by the debtor to the creditor or a third party; or
• placed under joint custody.

To perfect a pledge on registered instruments, such as registered shares, bonds or other financial instruments:

• the security interest must be registered in the relevant register (eg, share register); and
• an indication must be placed on such instruments that a pledge has been instituted.

The collateral must not remain in the possession of the debtor, and must be delivered by the debtor to the creditor or to a third party.

As for real property, the mortgage contract should be registered with the relevant real estate registry. The same applies to cars and other motor vehicles, ships and aircraft, whereby the pledge agreement should be registered with the relevant registry.

7.3 What charges, fees or taxes arise from the perfection of a security interest?

Pursuant to the Securitisation Law, a securitisation investment fund and the operations that it carries out are generally exempt from fees, charges and taxes, except as otherwise specifically mentioned in the law. However, any given tax exemption remains subject to the interpretation of the Ministry of Finance at the time the relevant operation is concluded.

7.4 What other considerations should be borne in mind when perfecting a security interest in your jurisdiction?

There are no express provisions in Lebanese law that allow a security interest to be taken over a fluctuating pool of assets.

7.5 What are the respective obligations and liabilities of the parties under the security interest?

In principle, a creditor that has been remitted with a movable asset over which a security interest has been taken is liable for the damage or defect of such property; while the security provider is liable to cover the costs of maintenance incurred by the creditor.

If such property generates proceeds, it is presumed that the creditor may take ownership of such proceeds. Interest and expenses owed to the creditor will initially be deducted from such net proceeds, and subsequently the principal owed, unless otherwise agreed.

The creditor may not use the collateral for its own benefit unless authorised to do so by the security provider. In this case, the amount of gain that the creditor has made will be deducted initially from the expenses and interest owed to the creditor, and subsequently from the principal owed.

If the security interest is taken over commercial instruments or items, the creditor must exercise on behalf of the debtor all rights relating to the items or instruments held by the creditor as collateral.

7.6 In the event of default, what options are available to enforce the security interest? Is self-help available in your jurisdiction or must enforcement action go through the courts? Are there insolvency regimes such as conservatorship or examinership that impose an automatic stay on the exercise of self-help remedies?

The self-help process is not available in Lebanon.

As a matter of Lebanese law, a security interest must be enforced pursuant to the relevant enforcement proceedings before the competent judicial authority.

By way of example, any provision of a pledge contract over movable assets that authorises the creditor to acquire or dispose of the pledged movable assets without following the required court proceedings is null.

It is contended that this provision will be deemed null to the extent that it was included in the pledge agreement or was agreed to at the same time as the agreement was concluded. However, if the provision was agreed to at a later date, after the debtor received the financial interest for which the security interest was being contracted, it will be valid.

7.7 Will local courts recognise a foreign court judgment in favour of an investor?

Under local law, a foreign court judgment will be recognised provided that it satisfies certain conditions, including the following:

• The foreign court judgment must have been issued by a competent court under the law of the jurisdiction in which it was rendered, provided that the basis for its jurisdiction was not solely the nationality of the plaintiff;
• The foreign court judgment must be final and enforceable in the jurisdiction in which it was rendered;
• The defendant must have been duly notified of the proceedings in which the foreign court judgment was rendered and due process must have been observed;
• The laws of the jurisdiction in which the foreign court judgment was rendered must permit the enforcement of judgments rendered by the Lebanese courts; and
• The foreign court judgment must not contain matters that are contrary to Lebanese public policy.

The foreign court judgment will not be recognised if:

• a final judgment has been rendered in the same dispute between the same parties by a Lebanese court; or
• there is a pending lawsuit before the Lebanese courts which has been filed prior to the relevant foreign court lawsuit with respect to the same dispute, between the same parties.

7.8 If the servicer becomes insolvent, will an enduring power of attorney/mandate granted by the servicer in favour of the secured parties be recognised and enforceable post-insolvency of the servicer?

As a matter of Lebanese law, a power of attorney will expire, among other things, upon the occurrence of a change in the situation of the principal or the proxy which leads to a lack in capacity to exercise its rights, such as legal incapacitation or bankruptcy, unless the object of the power of attorney may be completed notwithstanding such a change.

Based on the above, a Lebanese court may find that a power of attorney granted by the servicer in favour of the secured parties will be deemed to have expired if the servicer is declared bankrupt.

7.9 Do limited recourse, non-petition and subordination provisions bind creditors of SPVs in your jurisdiction and what are the applicable qualifications?

The Securitisation Law provides that senior and junior categories of units and debentures may be subordinated to one another as provided for in the bylaws of the securitisation investment funds. In this respect, some categories may bear the risk of non-payment of the receivables. However, all units and debentures pertaining to a specific senior or junior category will rank pari passu with one another and will have equal rights and the same rank as other units or debentures of the same category. In addition, and as mentioned in question 5.3, a securitisation investment fund may, among other things, issue various senior and junior units which represent different rights within the securitisation funds estate or components of this estate. The Securitisation Law thus recognises the possibility to have limited recourse and subordination provisions.

As Lebanese law recognises the sanctity of contracts, as a general principle, non-petition provisions may bind the creditors of a securitisation investment fund absent fraud or wilful misconduct.

8 Registration and disclosure

8.1 What public disclosure and reporting requirements apply to securitisations in your jurisdiction?

The Securitisation Law imposes the following reporting requirements on a securitisation investment fund vis-à-vis investors:

1. the manager of the securitisation investment fund must submit to each unit or debenture holder an annual report for each accounting period of the securitisation investment fund under its management, unless the regulations of the relevant fund provide for a higher frequency of reporting.
2. the annual report must be submitted within three months from the closing of each accounting period, and must contain, at least, the following audited financial statements:
   
   1. the balance sheet;
   2. the revenue account;
   3. the expense account, and in particular administrative expenses; and,
   4. an inventory of assets, with an assessment of their value, according to the relevant accounting standards applicable to each asset type.
3. the report must also include information that allows the tracking of developments in the relevant fund's financial estate. The report should also reflect the situation and developments in outstanding and unpaid receivables, the enforcement of guarantees, and an assessment of losses that may affect these receivables.

8.2 What registration requirements, if any, apply to securitisations in your jurisdiction?

Under the Securitisation Law, the approval of the Capital Markets Authority must be obtained for the establishment of a securitisation investment fund, among other things.

In addition, to the extent that a transfer of receivables includes an underlying mortgage or pledge agreement requiring registration, the transfer should be registered with the relevant registry (eg, the land registry in the event of the transfer of a real estate property mortgage or the car registry in the event of the transfer of a car pledge).

8.3 Is there any requirement to notify obligors of a securitisation? If so, how is this effected?

If so, how is this effected?

Yes, as mentioned in question 6.3, the originator must notify the transfer to the obligor by sending notice through ordinary prepaid post to the address of the obligor stated in the initial debt contract.

9 Credit rating agencies

9.1 What requirements and restrictions apply to credit ratings agencies in your jurisdiction? Are there specific provisions that regulate their relationship with issuers?

There are no credit rating agencies in Lebanon.

9.2 What are the main factors that rating agencies consider when rating the securities of the issuer?

There are no credit rating agencies in Lebanon.

10 Taxation

10.1 What tax considerations should be borne in mind from the perspective of the originator? What strategies, if any, are available to mitigate them?

The Securitisation Law provides that securitisation investment funds and all operations and transactions undertaken by them, or by third parties on their behalf, will be exempt from all taxes and fees, except as otherwise expressly excluded from this exemption in the law.

In this context, the transfer of movable or immovable assets to and from the securitisation investment fund is subject to a 50% deduction on the applicable transfer fees.

However, the application of any tax exemption remains subject to the interpretation of the Ministry of Finance or any other relevant public department at the time the relevant operation is undertaken.

10.2 What tax considerations should be borne in mind from the perspective of the issuer? What strategies, if any, are available to mitigate them?

Profits generated by the activities of a securitisation investment fund and profits realised upon liquidation are exempt from income tax, unless such profits are recorded in the income of banks or financial institutions in Lebanon.

10.3 What tax considerations should be borne in mind from the perspective of investors? What strategies, if any, are available to mitigate them?

Profits distributed by a securitisation investment fund will be subject to distribution tax at the relevant rate applied at the time the distribution is made.

Interest paid by the securitisation investment fund will be subject to withholding tax at the relevant rate applied at the time of distribution.

11 Trends and predictions

11.1 How would you describe the current securitisation landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?

There are no prevailing trends at the moment; and no new developments are anticipated in the next 12 months.

12 Tips and traps

12.1 What are your top tips for the smooth conclusion of securitisations and what potential sticking points would you highlight?

There will be greater clarity on this matter following the adoption of a restructuring and reform plan and a banking sector restructuring plan.

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.