Zhong Lun Successfully Held the “International Seminar for Asset-backed Notes with Special Purpose Trust” 2012-12-17

The “International Seminar for Asset-backed Notes with Special Purpose Trust” was held on December 10, 2012 at Zhong Lun Law Firm, Beijing Office. Attendants of the seminar include practitioners with key trust corporations, other financial institutions and other professional institutions, Prof. Steven L. Schwarcz (Stanley A. Star Professor of Law & Business with Duke University School of Law, an international-leading scholar in structured finance and securitization), Prof. Wang Yong (the president of Commercial Law Institute of China University of Political Science and Law, a leading trust law expert), Prof. Li Shuguang and researcher Wang Zuofa from Bankruptcy Law and Corporate Restructure Institute of China University of Political Science and Law, Dr. Xi Yuemin (the director of Economic Law Department of Law Institute of Chinese Academy of Social Science) and other scholars. Mr. Zhang Xuebing (Managing Partner of Zhong Lun), Mr. Yang Wantao (Head of Banking and Financial Services Department), partner Liu Borong and partner Li Haiqing also attended the seminar.

Mr. Zhang Xuebing delivered a speech to warmly welcome Prof. Schwarcz, Prof. Wang Yong and Prof. Li Shuguang for their visit to Zhong Lun. The speech also highlighted the main purpose of the seminar, i.e., to solve practical issues relevant to asset-backed note (“ABN”). Mr. Liu Borong hosted the seminar. Mr. Liu briefly introduced the three types of asset securitization currently existing in China securitization market, i.e. credit asset securitization, enterprise asset securitization and ABN. Mr. Liu put his emphasis on the illustration of the existing basic transaction structure of ABN with pledge of account receivables and a newly proposed “one note with two rights” structure with special purpose trust (“SPT”). Mr. Yang Wantao analyzed key issues for ABN with SPT, such as bankruptcy remoteness and separation issues. Prof. Schwarcz provided detailed introduction to Covered Bond (“CB”) mechanism overseas, including the history of CB, basic transaction structures under CB and differences between CB and asset securitization etc. Prof. Schwarcz also commented on Chinese ABN with SPT. He believed that, with respect to static asset pool, ABN with SPT is “fairer” than CB to unsecured creditors. He also noted that pursuant to article 15 of the PRC Trust Law, bankruptcy remoteness under ABN with SPT can be achieved. Thereafter, Prof. Wang Yong and Prof. Li Shuguang from China University of Political Science and Law respectively offered their insightful views regarding the key issues under ABN with SPT from academic perspective. Prof. Wang Yong believed that trust beneficial interest and creditor’s right under “one note with two rights” can be combined under provision for distribution of trust beneficial interest in the trust agreement. Prof. Li Shuguang shared his view that, after the financial crisis, regulatory authorities have tended to impose more strict supervisions over innovative financial products and be sensitive to risks of such products. Therefore, whether bankruptcy remoteness can be achieved is one of the most critical issues for the structure design of ABN with SPT. He noted that the proposed structure for ABN with SPT had taken such issue into serious consideration and thus could be adopted in practice. Mr. Yang Wantao, with his extensive practice experiences, interacted and discussed with three professors regarding issues such as bankruptcy remoteness, effectiveness of the trust and the coordination between bankruptcy law and trust law under ABN.

Photo of “International Seminar for Asset-backed Notes with Special Purpose Trust”

In the afternoon session, Prof. Schwarcz elaborated on the CB and Indenture Trustee system in international financial market, and analyzed their referential value for China’s proposed ABN with SPT. He also shared his view with other experts at the seminar regarding issues such as creditor’s right agent, dual rating requirement and investor-pay model according to the rating agency requirement.

During the seminar, attendants actively participated in the discussion, provided insightful and in-depth views, shared respective practice experiences and reached a preliminary consensus with respect to the proposed structure for ABN with SPT. To facilitate future coordination for the proposed structure for ABN with SPT, the attendants established a “coordination and action group for ABN with SPT” before closing of the seminar.

Photo of book signing event for Prof. Schwarcz

During the coffee break, a book signing event for Prof. Steven L. Schwarcz was arranged. Prof. Schwarcz’s book, STRUCTURED FINANCE, A GUIDE TO THE PRINCIPLES OF ASSET SECURITIZATION, was published by Tsinghua University Press in 2003.

Mr. Yang Wantao (the first from right side), Mr. Liu Borong (the second from left side), Mr. Li Haiqing (the first from left side) and Prof. Schwarcz (the second from right side)