News from 2010

Radu Rizoiu, Senior Partner at STOICA & Asociatii published in The Romanian Private Law Magazine no. 6/2009 the article “Asset securitization or The utopia of the perfect security”.

Asset securitization is a complex financing mechanism available to companies. It requires the company to hold certain receivables that could be used as collateral for issuing securities to be listed on the stock exchange. Under civil law, asset securitization is a form of assignment of receivables. As such, besides the specific statutes dealing with asset securitization, the general rules of assignment of receivables have an important place in shaping this institution.

Even if Romania enacted since 2006 a special law dealing with the asset securitization, this financing tool was not yet used in practice. The reasons are both economic (the lack of a developed capital market) and legal (a regulation that is mostly restrictive). The legal reform of the assignment of receivables included in the New Civil Code could be the starting point of rethinking the asset securitization under Romanian law.

Asset securitization was born as a (possible) answer to the legal rules meant to (re)bring the equality as a rule of splitting the liquidation proceeds between the creditors of the distressed debtor. The creditors (especially those who took the benefit of a security interest) like to set themselves their ranking. Once the law takes away this right from them, they will make all efforts (that are economically efficient) to avoid such rules.

The securitization was such an effective method of avoiding the limitations built in the insolvency laws that if emerged overnight as the star of the financial markets. But its astonishing success has also caused its severe crash during the recent economic crisis. Relaunching the securitization depends of the maturity of the market and a careful use of its elements. The asset securitization is not meant to replace the security interests (in personal property) but only to help them.