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What does it mean to the Canadian legal community? Kath- leen Penny, of Blake Cassels & Graydon LLP, says: "That's get- ting into a thorny issue. I think it will mean significant changes to the type of legal practice we have for financing. There are more opportunities to work on cross-border securitization transactions. The idea would be that different types of loans or other financial assets could be generated in Canada, and then the whole world market, including the U.S., would be available to sell interest in them to investors outside Canada. Whereas, right now, most types of financial assets would have to be sold to investors within Canada, because of the withholding tax. So it opens up a whole new market for selling interest-bearing assets outside of Canada. That's helpful for a lot of Canadian financial institutions and other types of Canadian investors in interest-bearing assets. "Of course in the other direction, it opens up the market for anybody in the world to lend to Canadian companies, so I think there will be clearly more competition in the market for lending to Canadian borrowers." Consequently, foreign financial insti- tutions will now be in a position to compete on a level playing field with the Canadian banks in their securitization markets, and they will be able to finance the complete variety of securi- tization issues that originate in Canada. Securitization is a relatively recent phenomenon, beginning as a financing vehicle in Canada in the late 1980s, when New Line Trust securitized a pool of NHA-guaranteed mortgages. There was limited activity in the market until 1991, when three major public companies looked to securitization of assets to relieve pressures due to credit-related problems. Once regu- lators in the mid-1990s signalled their approval of the use of securitization in the financial industry, Canadian chartered banks moved rapidly to securitize many of their assets. The majority of growth in the securitization market in Canada to date is due to this bank activity. The U.S. continues to be the leader in all areas of securitiza- tion, as it innovatively creates new concepts and asset-classes throughout its market. Products in the U.S. market are as varied as subprime auto loans, student loans, entertainment royalties, and costs associated with the privatization of public utilities. Also evident is U.S. investors' increased tolerance for risk, ver- sus Canadian investors, in the quest for additional yield. For- eign institutions will be able to securitize Canadian financial assets for the first time, due to the withholding tax removal, without being tied to cumbersome and complex cross-border restrictions. This can only make the Canadian securitization market more visible and appealing. While most tax lawyers agree that it's too early to tell what impact the elimination of the withholding tax will have on their practices, some welcome them, while others are more wary. John Lorito of Stikeman Elliott LLP reports that, "Most of Pointing you in the right direction Rely on Aird & Berlis LLP for guidance. We have the depth and strength of Canada's largest firms, yet we also possess the creativity and effectiveness of a mid-size firm. A&B is a prominent law firm of more than 130 lawyers with a diversified practice. Clients benefit from our solid relationships with renowned national and international law firms, major institutions and government authorities. We understand the realities of your work. Count on us to keep your business on course. Partnership. Results. Success. Eldon Bennett, Managing Partner E ebennett@airdberlis.com T 416.865.7704 Brookfield Place, 181 Bay Street, Suite 1800, Toronto, ON M5J 2T9 T 416.863.1500 F 416.863.1515 W www.airdberlis.com www. C ANADIAN Law ye rmag.com FEBRU AR Y 2008 41