Investment structures
Within the investment structures of DMPM an investor can select whether or not the preference is for the mortgage receivables to be directly transferred to the investing entity itself or whether they are retained by a special purpose vehicle funded by the investor.
Direct investment
Under a direct investment structure, the mortgage receivables are transferred to the investor directly and thus appear on the balance sheet of the investor as mortgage loans. In the Dutch market, the transfer is typically effectuated by means of a ‘silent assignment’ (stille cessie), i.e. without informing the borrower of the transfer until certain events take place. As long as no notification to the borrower has taken place, the originator remains the sole entity that is in contact with the borrower and thus retains all reputational risk. Any cash flows related to the mortgage receivables are transferred by the originator to the investor after deduction of any applicable fees.
Indirect investment
Under an indirect investment structure the originator does not transfer the mortgage receivables to the investor but to an intermediate entity that holds the assets on behalf of the investor. The intermediate entity can be either and SPV or and FGR (see below) and is funded by the issuance of a note (in case of an SPV) or participation (in case of an FGR) that is purchased by the investor.
SPV
The intermediate entity can be set up as a regular Special Purpose Vehicle. Under Dutch law this is typically a so-called orphan entity: a trust office is appointed to be the director and the shares of the SPV are held by a separate entity, in most cases a 'stichting'.
The transaction documentation dictates how the SPV is run and DMPM would be appointed to perform any actual activities such as e.g. cash management on behalf of the SPV. Through its business partners DMPM is also able to use existing structures to facilitate the indirect investment options through an SPV.
FGR
The intermediate entity can also be structured as a so-called 'Fonds voor Gemene Rekening'. The major difference between an SPV and an FGR is the tax treatment and the fact that a custodian and a fund manager are appointed to oversee the performance of the FGR, but in essence the objective is the same: hold the mortgage receivables on behalf of the investor.
Depending on the accounting requirements, the investor accounts for the note/participation on its balance sheet or consolidates the intermediate entity and thus the mortgage receivables held by it. Any cash flows related to the mortgage receivables are transferred by the originator to the intermediate entity, in most cases after deduction of any applicable fees. The investor receives these amounts as interest on its note investment or return on its participation.