Special Purpose Vehicle for Securitization: Definition of Future Receivables and Compliance for Change of Servicer

What is Special Purpose Vehicle and Securitization

Under the Royal Enactment on Special Purpose Juristic Person for Securitization B.E. 2540 (1997) (the “Royal Enactment”), a Special Purpose Vehicle (“SPV”) is a juristic person registered under the Royal Enactment^ⅰ  that facilitates the conversion of assets into securities through a process known as "Securitization". Under said process of securitization, the SPV accepts the transfer or placement of assets as collateral from an asset seller (the "Originator^ⅱ "), securitizes such assets into asset-backed securities and then issues and offers such securities for sale to investors. The proceeds from such sales of securities to investors will be paid to the Originator in accordance with the particular agreement between them; while the investors will be repaid by the SPV, depending on the flow of income generated from such assets transferred or placed as collateral, which the Servicer^ⅲ  will facilitate upon the collection of payment from underlying debtors or borrowers. The assets that the SPV can accept the transfer or placement of assets as collateral are as follows:

• (1) Rights of claim which generate a flow of income; or 
• (2) Rights of claim that come into existence in the future and which determine debt repayment in cash and generate a flow of income in accordance with the rules specified by the Securities and Exchange Commission (“Future Receivables”).

For instance, Company A functions as the Originator and engages in the business of providing housing loans. This activity results in the creation of Future Receivables, which means that Company A has a right to demand repayment of the loans from its debtors (“Underlying Debtors”) in the future, which such repayment will be made in cash and a steady stream of income can be generated from these repayments. If Company A requires funds for a particular business operation or purpose, it can transfer its Future Receivables to the SPV. Upon receipt of such Future Receivables, the SPV will convert them into securities, such as bonds (Securitized Bonds), and sell them to interested investors. The proceeds of the sale will be remitted to Company A, while the SPV will use a portion of the income generated from the housing loan repayment to pay the investors who invested in the securitized securities. Regarding the repayment of housing loans by the Underlying Debtors, the Servicer will act as an intermediary between the SPV and the Underlying Debtors, and is thus responsible for the collection of payments deriving from the housing loan, which generates the repayment flow from the Underlying Debtors.

Definition of Future Receivables and Compliance for Change of Servicer

On 9 June 2023, the Securities and Exchange Commission (“SEC”) announced a public hearing regarding secondary regulations for the Royal Enactment. These regulations will provide criteria for the following matters:

A.    Definition of Future Receivables
Future Receivables that can be securitized must meet the following criteria:

• (1) The Originator can clearly demonstrate that the claim can generate a viable income stream; and
• (2) The potential under (1) must be evaluated by using sufficient historical data of estimating potential income streams, such as claims arising from credit card, water or electricity usage.

B.     Compliance for Change of Servicer 
If the SPV changes the Servicer (provided that such change does not result from the merger of the Servicer), the underlying debtors/borrowers must be notified in accordance with the following criteria as of the date of such change:

• (1) The underlying debtors/borrowers must be notified of the change of Servicer in writing or electronically by using their preferred contact channels as previously notified, such as registered letter, e-mail or mobile phone message. The notification must include at least the following details:
• (a)  names and contact details of the new Servicer; and
• (b) debt repayment channels.
• (2) The underlying debtors/borrowers must be notified at least 30 days before the next due payment date.

By issuing these secondary regulations, the SEC aims to provide the private sector with clear implementation guidelines that comply with the laws on Securitization. Such regulations are expected to be effective as of 1 January 2024.

This is intended merely to provide a regulatory overview and not to be comprehensive, nor to provide legal advice. Should you have any questions on this or on other areas of law, please do not hesitate to contact:

Nuttaros Tangprasitti
Partner
Krid Pongprapaphan
Associate (Attorney-at-Law)

ⁱThe SPV may be formed as a limited company, public limited company or other juristic person as prescribed by the SEC, or by establishing a trust that has the specific purpose of securitizing assets.

^ⅱAccording to the Notification of the SEC No. Kor Jor. 7/2552, the Originator must have the following characteristics:

In this regard, in order to proceed with the Securitization, the Originator shall specify details of the project for which the Securitization is required in accordance with the rules, procedures and conditions specified by the SEC.

^ⅲThe Servicer is a third-party entity acting as an intermediary between the SPV and underlying borrowers regarding the assets transferred or placed as collateral, which is responsible for managing the assets held by the SPV, including collecting payments from such underlying borrowers. The Servicer’s role is critical in ensuring that funds are being received from the underlying borrowers in a timely manner, and that the SPV can meet its obligations to the investors.

Authors