The whole business securitization structure first emerged with the securitization of nursing homes in the United Kingdom in the mid-1990s.
The salient features of whole business securitization are as follows.
Other features of the whole business securitization transaction structure are typical securitization features, such as liquidity facilities and other types of credit enhancement.
The Malaysian whole business securitization transaction, 1st Silicon (Labuan) Inc., was completed in June 2001.
In a whole business securitization, simultaneously with the SPV making the loan, the corporate borrower grants the SPV fixed and floating charges on all its corporate assets.
Professor Hill argues that for a business to be a suitable candidate for whole business securitization, the following factors are desirable: fairly predictable cash flow, a stable operating history, managers who are not indispensable, careful monitoring of the company and its cash flow, and no need for regular additional financing.
In Professor Hill's view, the primary benefit achieved by whole business securitization is the minimization of bankruptcy costs resulting from the agreement between the entire group of creditors when the loan is made concerning their respective rights and obligations if financial difficulties later arise.
Overall, it seems to me, and I suspect that Professor Hill would agree, that frequent use of whole business securitization in emerging markets, especially in Asia, is at least a good decade away, if it occurs at all.
Whole business securitization lies somewhere between the categories of asset-backed securities and corporate finance but is arguably closer to the latter than to the former.
The legal basis for whole business securitization is the power of a backup servicer, apprehending bankruptcy of the originator, to take over the assets of the originator and have them administered for the interest of the investors.
Professor Hill's article attempts to explain the inherent economics of whole business securitization, which, as she admits, is complicated.
The most important advantage of whole business securitizations is the fixed and floating charge of the security trustee that acts as a shield for investors.