EU: The Regulation allowing securitization bonds to be designated as European Green Bonds has been published

Spain - 18 / 12 / 2023

European Regulation 2023/2631, which will become applicable on December 21, 2024, envisages this option for securitization bonds, except in the case of bonds issued for synthetic securitization purposes.

Regulation (EU) 2023/2631 of the European Parliament and of the Council of 22 November 2023 on European Green Bonds and optional disclosures for bonds marketed as environmentally sustainable and for sustainability-linked bonds was published in the Official Journal of the European Union on November 30, 2023. It comes into force 20 days after its publication and will become directly applicable on December 21 2024 (with the exception of certain articles for which different application dates are stipulated).

One of the most striking new features of the Regulation is its recognition of the possibility of securitization bonds (except for bonds issued for the purposes of synthetic securitization) being classed as European Green Bonds, with which it lends this product the support that is so necessary for the disintermediation of banks.

“Securitization bonds” is understood for these purposes to refer to bonds issued by a securitization special purpose entity (SSPE), in accordance with the definition provided in Regulation (EU) 2017/2402.

According to Regulation 2023/2631, securitization bonds may be considered as "European Green Bonds" meaning that in the application of the Regulation, they will be subject to certain specific rules not applicable to other bonds under the general regime:

As a general rule, references to the "issuer" in the Regulation mean the originator of the underlying assets (i.e. the entity that sells or transfers the receivables - loans, invoices, etc. - to the relevant SSPE (by which the securitization bonds are issued).
Where there are multiple originators in a single securitization transaction:
- the requirements with respect to the use of proceeds are to be met by each originator on a pro rata basis, by reference to its share in the pool of securitized exposures; and
- the originators must meet jointly the requirements in respect of the following obligations, clearly indicating the extent to which each originator has complied with its respective requirements: (a) completion of the factsheet set out in Annex I of the Regulation, ensuring that it has been subject to a pre-issuance review with a positive opinion by an external reviewer; (b) the preparation of allocation reports and post-issuance review of allocation reports; (c) the preparation and publication of the impact report; (d) publication on the website and the corresponding notification to the competent authorities; (e) explanations regarding the exclusion of certain assets; and (f) additional disclosure requirements.
Where the Regulation refers to the allocation of the proceeds received by the issuer, this is understood to mean the proceeds obtained by the originator as a result of the securitization transaction.
For securitization bonds to be green, the underlying assets (loans, receivables, invoices, etc.) must not include assets that finance the exploration, mining, extraction, production, processing, storage, refining or distribution, including transportation, and trading of fossil fuels. The originator must explain that this requirement has been met in the corresponding factsheet.
Despite the restriction in point (iv) above, the pool of securitized assets may include assets which finance fossil fuel-based electricity generation, co-generation of heat/cool and power from fossil fuels, or the production of heat/cool from fossil fuels, provided the activity meets the criteria under the "do no significant harm" principle set out in Delegated Regulation (EU) 2021/2139.
Prospectuses published for issuances of securitization bonds designated as "Green Bonds" must include:
- the rating of the bond in question as a securitization bond;
- a statement affirming that the originator is responsible for fulfilling the commitments in relation to the use of proceeds;
- information on the environmental characteristics of the securitized exposures on the basis of available data, in the terms stipulated in the Regulation. This information must also be included in the relevant factsheet and its updates.

The clarification that the Regulation provides as to the manner of applying to securitization bonds the requirements for their designation as “Green Bonds” like other fixed-income products is an endorsement of this important instrument at EU level, contributing, one step further, to the Capital Markets Union.