Developments in Securitisation in Peru

The Peruvian economy has experienced mild growth across different sectors and activities, and in 2022, its GDP grew by 2.8%. The securitisation structure continues to be a useful tool to reduce (at least partially) the risks which are inherent in all financing structures.

Among the main developments in securitisation trends and practices for 2022 are:

• the development of opportunities to carry out asset securitisation processes given the economic effects of the COVID-19 pandemic;
• at the pinnacle of the COVID-19 crisis, the adoption by the Peruvian government of securitisation programmes created to serve as a guarantee to safeguard the stability of the economy;
• the growth of local Real Estate Investment Trusts (REITs, or FIBRA in Spanish); and
• the Peruvian Housing Development Bank (Fondo MIVIVIENDA) initiative to develop a secondary market for low-income housing.

Regulatory modifications

Collateral to secure the issuance of securities

On 4 December 2021, Resolution No 124-2021-SMV/02 was published in the Official Gazette. The regulation aims to exempt the requirement of the registration of collateral (which may take up to five weeks) as a condition precedent for the launching of a private offering of securities. This exemption will remain in force until 31 December 2023. The resolution states that, regarding securities that are to be placed through public offerings without a prior registration of collateral to back their issuance, the following regulations shall be applicable.

• Regarding disclosure – in cases where collateral for the issuances has yet to be registered, such information must be disclosed to investors clearly, in detail and in a sufficient manner in the risk-factors section of the corresponding prospectuses, as well as the consequences that will result in the event that the collateral is not eventually registered.
• Regarding the term to obtain the corresponding registration – the issuer must commit to register the collateral within 180 calendar days after the first issuance. Such commitment shall be included as a schedule of the prospectus. This term may be increased by a majority of bondholders and any such decision must be notified to all the other bondholders.

• Requirement to obtain express consent in purchase orders – purchase orders must necessarily include, expressly, that subscribers or purchasers of the securities are aware, know, and consent to the fact that the collateral has yet to registered, and accept the associated risk regarding that situation.
• Option to disclose risk factors, warnings and disclaimers – the additional relevant information that the issuer determines should be disclosed, must be revealed in the prospectus in a timely manner.
• Post-placement information regarding registration of the collateral – the issuer must disclose a material event (hecho de Importancia) once the collateral has been registered and submit the corresponding evidence of such registration in the Peruvian public registry.

Notwithstanding the legal actions that may also need to be filed against the issuer, its directors and managers, failure by the issuer to register the collateral shall, additionally, carry the following consequences.

• A default event will be considered to have occurred and with it all the consequences provided for in the master agreement, including being obligated to convene a bondholder’s assembly.
• The issuer shall report each month, as a material event, on the failure to register the collateral, stating the value of the amount of securities issued and information regarding the collateral yet to be registered.

The above-mentioned consequences shall not be applicable if the bondholders agree to extend the term to register the collateral. In no case shall the issuer be able to extend for over one year the term to register the collateral, counted from the date on which the securities are placed, unless there is unanimous agreement between all the bondholders.

Regarding the placement of securities through primary public offerings without having previously registered collateral in the Peruvian public registry, regulated under SMV Resolution No 021-2013-SMV/01 (which applies to the market of Institutional Investors), the following regulations shall be applicable.

• Regarding disclosure – in cases where collateral for the issuances has yet to be registered, such information must be disclosed to investors clearly, in detail and in a sufficient manner in the risk-factors section of the corresponding prospectuses, as well as the consequences that will result in the event that the collateral is not eventually registered.
• Regarding optional commitments with respect to the corresponding registration of collateral – the issuer must clearly state if it will commit itself to eventually register the collateral or if such collateral shall not be registered at all.
• Requirement to obtain express consent in purchase orders – purchase orders must necessarily include, expressly, that subscribers or purchasers of the securities are aware, know, and consent to the fact that the collateral has yet to registered and accept the associated risk attached to that situation.
• Option to disclose risk factors, warnings and disclaimers – the additional relevant information that the issuer determines should be disclosed, must be revealed in the prospectus in a timely manner.
• Fiduciary and administrative responsibilities – notwithstanding the corresponding legal actions that may be filed against the issuer, its directors and managers, failure by the issuer to register the collateral will cause a default event to be considered to have occurred and with it all the consequences provided for in the master agreement, including being obligated to convene a bondholder’s assembly. Such consequence may be avoided if the assembly of bondholders: (i) agrees to extend the term to register the collateral, unless the issuer does not comply with the extended term, or (ii) agrees to waive the obligation of the issuer to register the collateral.
• Post-placement information regarding registration of the collateral – the issuer must disclose as relevant information (información eventual) once the collateral has been registered and submit the corresponding evidence of such registration in the Peruvian public registry.

The securities regulator has the task of creating a similar applicable framework for securitisation. At the date of writing, in January 2023, the requirements set forth above are supplementary, although the enactment of the regulations for securitisation bonds is a pending and necessary task.   

Market developments

Comparison between the amount of offers registered with the Capital Markets Superintendency (SMV) in 2019, 2020, 2021 and 2022

In 2019, securitisation bonds amounting to PEN230 million were placed through primary public offerings. In 2020 and 2021 there were no securitisation bonds placed through primary public offerings. Similarly, as of November 2022, no securitisation bonds had been placed through primary public offerings.

However, the above does not mean that the market is stagnant. Private placement of securitisation bonds/certificates are not public, and publicly disclosed filings of existing REITs show that the securitisation market remains profitable.

Further, even though new issuances have not occurred through public primary offerings in the past three years, as of November 2022, the Peruvian market has over USD420 million in placed securities issued through securitisation structures through primary public offerings.

Comments on leading cases

The first and main regulated REIT in Peru has a USD500 million framework programme registered before the SMV. As of November 2021, a total of USD60 million of securitisation bonds backed up by the trust had been placed in the market.

On 27 November 2020, the SMV registered the largest programme in the history of the Peruvian securities market for up to USD2 billion with respect to a REIT. That REIT has not yet had a publicly disclosed placement of securities.

Comments about the development of private offers

Although, as a general rule, private offering of securities are outside the scope of supervision of the SMV, according to Article 333 of the Securities Market Law (LMV in Spanish), private offerings of securitised instruments may only be offered to institutional investors. Likewise, the securities acquired by these investors may not be transferred to third parties, unless this is done in favour of another institutional investor, or the security has previously been registered before the Public Registry of the Securities Market.

According to the Income Tax Law, in cases of securitisation carried out through REITs, it is the investor who must pay the tax and not the trust itself. In this respect, the rates that the law has established have been quite attractive for the market: 5% for individuals, 29.5% for companies and 0% for institutional investors (which are listed in Resolution SMV No 021-2013-SMV-01). The preferential rate for institutional investors serves as an incentive to structure financing schemes through securitisation programmes aimed at institutional investors.

In addition, the average approval of a public offering usually takes approximately 30 business days and the registration of securities entails the obligation to periodically disclose information as a material event (hecho de Importancia). Such additional costs and obligations to disclose information on a periodic basis have, in certain cases, led companies to opt for securitisation schemes through private offerings.

Reactiva Peru

Description of the programme through the securitisation scheme

The Peruvian declaration of emergency and mandatory social distancing generated a negative impact on the local economy, decreasing spending and affecting the income of Peruvian companies. With this in mind, to protect the payment chain, the Peruvian government approved a guarantee programme, named REACTIVA Peru, to provide working capital for up to PEN60 billion, through Legislative Decree 1455. This programme has two financing forms: individual guarantee and portfolio guarantee, the latter being a securitisation trust which facilitates the granting of national government guarantees.

The programme allows companies in the financial system (ESF by its acronym in Spanish) (with their own funding) to choose to provide working capital loans to those companies that meet the programme’s eligibility requirements. In turn, the ESFs enter into a guarantee agreement with Corporación Financiera de Desarrollo (a Peruvian state-owned development bank – COFIDE by its acronym in Spanish) which establishes the terms for granting the national government’s guarantee to the loans placed by the ESFs, which will be transferred to a securitisation trust to be administered by COFIDE as trustee and securitisation company and whose trustee is the Ministry of Economy and Finance.

In that respect, the ESFs transfer to the trust the credit portfolios they have placed under the programme. In consideration for the transfer of the loan portfolio, two certificates of participation of the Trust are issued: (i) for the percentage covered and (ii) for the balance of the portfolio without additional guarantees.

The guarantees of the programme only serve as a back-up as long as they are used, exclusively, in operations of the Central Reserve Bank of Peru (BCRP by its acronym in Spanish).

Why securitisation is the ideal mechanism (security for autonomous assets, feasibility of issuing participation certificates in favour of banks and the government)

Securitisation is an ideal mechanism for the guarantee programme because it allows ESFs to obtain greater immediate cash flow by being able to trade the certificates issued that are backed by the government.

Similarly, even though the financial entity granted the loan portfolio in a pass-through capacity, it will continue to be in charge of collecting payments from the loans and the companies that have obtained the loans from the ESFs, under the terms and conditions agreed upon.

COFIDE’s involvement and regulatory changes that allow it to be a trustee

Given that the SMV is the authorised regulator for securitisation companies, by means of Superintendent’s Resolution No 00041-2020-SMV/02, provisions were approved so that COFIDE may act as a securitisation company in the guarantee programme of REACTIVA Peru and in the National Government’s Guarantee Programme for the Credit Portfolio of the Companies of the Financial System under Legislative Decree No 1508.

Future market trends: what we expect

Securitisations to restructure debts 

Companies have been using securitisation structures to improve the management of their liabilities. A good example is that of a group of Peruvian schools that in October 2020 placed a second issue of social bonds through a private offering under its First Securitised Bond Programme for an amount of USD17 million and a term of 15 years, thereby redeeming and cancelling securitisation bonds which were outstanding and issued in 2014. 

It is worth highlighting the particularity of this case because it was not only a securitisation process, but also a securitisation process with the issuance of thematic (social) bonds certified by an independent verifier, which has been increasing in the local market in recent years.

Securitisation for the Peruvian Housing Development Bank (Fondo MIVIVIENDA)

There is an initiative to develop a secondary market for low-income housing by the Peruvian Housing Development Bank (Fondo MIVIVIENDA) loans. In the Peruvian market, securitisation trusts can help provide cash flow to Fondo MIVIVIENDA, as local regulation offers legal instruments to bolster the secondary trade of mortgages. At the present time, the housing market faces a lack of liquidity.

Securitisation for small- and medium-sized enterprises (SMEs) 

In the Peruvian market, securitisation trusts can help provide cash flow to SMEs, as local regulation does not limit their use only to originator companies with large-scale assets. The current lack of liquidity of local companies and the increased risk aversion of banks create an ideal space for SMEs to seek new financing schemes that allow them to obtain liquidity in the short term.

In this sense, the structuring costs that usually accompany this type of issuance have been reduced in the market, as financing structures have been standardised and negotiation costs have been reduced. In recent months, the securitisation companies have been promoting the demystification of the theory that asset securitisation implies higher costs (in terms of expenses and time) than traditional financing schemes, especially in the case of private offerings.