Some recent legal developments have affected the Austrian securitization and structured finance markets. Amendments to statutory law have created some undesired side-effects of Basel II implementation, not only in the regulatory field, but also potentially in the area of tax.
In a recent ruling dealing with jouissance rights the Supreme Court has set out certain limitations on the perpetual nature of jouissance rights that also affect certain hybrid capital instruments. These limitations are particularly relevant in relation to issuances by unregulated corporations where no legal provisions are available to support the perpetual nature of the instruments.
Parliament has finally adopted the long-awaited Law on the Securitization of Receivables and the Law on Mortgage Bonds. Although the Mortgage Bonds Act appears to provide a suitable tool for issuing covered bonds, the Securitization Act appears to be overly regulative.
Securitization has not yet been widely accepted by Austrian corporations and credit institutions as a tool for funding or for freeing regulatory capital. To resolve the legal challenges raised by true sale securitization transactions, the legislature has passed several laws to help banks issue asset-backed securities.
A draft bill being considered by the Austrian Parliament is designed to improve the quality and rating of mortgage and covered bonds. The existing legal framework contains legal uncertainties regarding the inclusion of certain assets in the asset cover pool and the provision of excess collateral to meet lenders' demands.