An alternative to the standard assignment of a debt portfolio is sub-participation. This is an agreement, within the framework of which the securitisation initiator (e.g. a bank) undertakes to transfer cash benefits from the pool of claims or the amounts received under collateral for the securitised debt to another entity (securitisation fund) in return for a commitment to pay a predetermined price. In this model, the originator remains an owner of the asset portfolio.
The amendment to the CIT Act that entered into force on 1 January 2014 has made sub-participation more attractive to banks. Banks will be able to recognise tax revenue in respect of sub-participation, not at the time of conclusion of the sub-participation agreement and obtaining the price for the transfer of cash performances, but only at the maturity or repayment of principal instalments under the debt concerned (if the repayment occurs first).
Sub-participation may turn out particularly useful for the sale of mortgage-secured debt, as it allows avoiding the time-consuming and expensive procedure of changing the mortgagee in the land and mortgage register.