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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: warehouse companies

Warehouse companies

Regulation 8

There may also be a company in the securitisation arrangement that exists to act as an interim holder of assets which are to be securitised. Such a company is referred to as a ‘warehouse company’, and is essentially a pre-securitisation SPV. Typically, a warehouse company is established in order to build up a pool of assets until there is a sufficiently large pool to allow a securitisation to take place and/or in order to have a pool of assets ready for securitisation when market conditions are favourable. The company may either originate the assets itself or purchase the assets from an originator or both. The term ‘acquiring’, as used in the definition of a warehouse company, will be taken to include originating, where applicable, and also encompasses the related funding arrangements the company enters into in order to acquire the assets. Such a company will typically obtain funding in the bank market, rather than the capital market.

The definition of a warehouse company, therefore, is that its business (apart from any incidental activities) is to acquire (which includes originating) or hold (which includes managing) financial assets for the purpose of transferring them to an asset-holding company or a note-issuing company, or until it turns itself into an asset-holding or note-issuing company.

In some cases, when a warehouse company has built up a portfolio of assets ready for securitisation, the warehouse company will transfer the assets back to the originator for the purpose of enabling the originator to transfer them onwards to an asset-holding company or note-issuing company. So long as the originator does in fact reacquire the assets for that purpose and transfer them onwards immediately or shortly after reacquiring them, the interposition of the originator at that stage will not prevent the warehouse company from satisfying the requirements of Regulation 8.

A ‘warehouse company’ may become a note-issuing company or an asset-holding company. That is, it may refinance its bank or other borrowings through a securitisation by itself issuing capital market investments (as a note-issuing company), or by borrowing from a note-issuing company (as an asset-holding company). In such cases, a warehouse company may continue thereafter to acquire other assets on a ‘warehouse’ basis, with a view to refinancing those assets as well. The key question will be whether, at any given time, taking each portfolio of assets in isolation, the company’s activities with respect to that portfolio fall within the definition of ‘warehouse company’ or ‘note-issuing company’ or ‘asset-holding company’. Provided the company has no other activities other than ones which are ‘incidental’ to being one of these types of company, it will still be a ‘securitisation company’ notwithstanding that it has combined activities. It will not be disqualified solely because its different categories of activities are not purely ‘incidental’ to one another.

‘Warehouse arrangements’

A warehouse company will not be party to a capital market arrangement in the pre-securitisation period (and may never become party to a capital market arrangement), but it will operate in a very similar manner, under equivalent documentation (for example, it will have the same sort of priority of payments schedule - see CFM72510), and will exist solely for the purpose of facilitating full securitisations. It is appropriate therefore that it should be taxed on the basis of its ‘retained profit’ as are other securitisation companies.

Regulation 8 defines the activities of a warehouse company as a ‘warehouse arrangement’, thus enabling the company to have a ‘retained profit’ as defined under Regulation 10, notwithstanding that the company is not party to a capital market arrangement (CFM72340), and to have a taxable profit for the purposes of Regulation 14 (CFM72580).