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HMRC internal manual

Corporate Finance Manual

HM Revenue & Customs
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Other tax rules on corporate finance: securitisation: periods beginning on or after 1 January 2007: the regulations: intermediate borrowing companies

Intermediate borrowing company: Regulation 7

In more complex securitisations there may be one or more companies standing between the company holding the securitised assets and a note-issuing company. For such a company to be a securitisation company, it must be a creditor in relation to the company holding the securitised assets or another intermediate borrowing company, and a debtor in relation to, wholly or mainly, a note-issuing company or another intermediate borrowing company.

Where there is a securitisation of financial assets, the company holding the securitised assets, to which the intermediate borrowing company lends, must be within the definition of an asset-holding company (see CFM72410). However, the regulations also allow for a company (or a partnership to be treated as a company) to be an intermediate borrowing company where there is a securitisation of non-financial assets (typically a whole business securitisation). In that case, the company (or partnership) to which the intermediate borrowing company lends must be one which would have qualified as an asset-holding company apart from the fact that it holds non-financial assets.

As a result of an amendment made by the Taxation of Securitisation Companies (Amendment) Regulations 2007 (SI2007/3339), Regulation 7 also encompasses the case where the intermediate borrowing company on-lends to a partnership that holds financial assets (as well as one that holds non-financial assets).

As with the note-issuing company and the asset-holding company, an intermediate borrowing company will not be prevented from being a securitisation company if it has incidental activities, such as entering into swap arrangements to hedge its borrowings.

As with the asset-holding company, the definition of an intermediate borrowing company was amended by SI2007/3339 to allow for cases where the company is initially funded mainly with senior debt that is ultimately sourced mainly from the capital markets, but that subsequently ceases to be the case due to amortisation of the capital market funding. (CFM72430).