Capital Requirements for Securitisations with Early Amortisation Provisions
PIB 4.14.51 PIB 4.14.51
Authorised Firmwhich is the Originatoror Sponsorof a securitisation involving revolving Exposuresas well as an Early Amortisationprovision, must calculate an additional RWAamount in accordance with PIB Rule 4.14.57 to address the possibility that its Credit Risk Exposurelevels may increase following the operation of the Early Amortisationprovision.
PIB 4.14.51 Guidance1. This section sets out the methodology for calculation of the
Credit RWAamount by an Originator, when it sells revolving Exposuresinto a securitisation that contains an Early Amortisationprovision.2. Early Amortisationof the Securitiesdescribes the process whereby the repayment of the investors' interest is brought forward upon the occurrence of specified events. Events that are economic in nature by reference to the financial performance of the transferred assets are known as economic triggers.
PIB 4.14.52(1) An
Authorised Firmwhich is the Originatoror Sponsorof a securitisation involving revolving Exposures, must calculate Credit RWAamounts in respect of the total Exposurerelated to a securitisation (both drawn and undrawn balances) when:(a) the Authorised Firmsells Exposuresinto a structure that contains an Early Amortisationfeature; and(b) the Exposuresare of a revolving nature.(2) Where the underlying pool of a securitisation comprises revolving and term Exposures, an Authorised Firmmust apply the amortisation treatment outlined below for determining applicable regulatory capital only to that portion of the underlying pool containing revolving Exposures.
PIB 4.14.53 PIB 4.14.53
Authorised Firmwhich is the Originatorof a Revolving Securitisationthat includes economic triggers for Early Amortisationmay regard the Exposuresas transferred for the period up to the point of repayment, provided that:(a) during the amortisation period there is full sharing of interest, principal, expenses, losses and recoveries; and(b) the Authorised Firm'srisk management system provides warning indicators when economic or non-economic triggers may be activated.
PIB 4.14.53 Guidance
Examples of such triggers include tax events, legal changes resulting in an
Authorised Firm'snon-performance in its role as a servicing agent, and triggers relating to the insolvency of the Originator.
Authorised Firmis not required to calculate a Capital Requirementfor Early Amortisationin the following situations:(a) replenishment structures where the underlying Exposuresdo not revolve and the Early Amortisationends the ability of the Authorised Firmto add new Exposures;(b) where the risk associated with revolving assets containing amortisation features that mimic term structures, where the risk does not return to the Authorised Firm;(c) structures where the Authorised Firmsecuritises one or more credit lines and where investors remain fully exposed to future draws by borrowers so that the risk on the underlying facilities does not return to the Originatoreven after an Early Amortisationevent has occurred; or(d) where the Early Amortisationclause is solely triggered by events not related to the performance of the Securitised assets or the Authorised Firm, such as material changes in tax laws or regulations.
Authorised Firmsubject to the Capital Requirementreferred to in PIB Rule 4.14.51, the maximum Credit RWAcalculated under that Rulemust not exceed the greater of the following:(a) the RWAamounts calculated in respect of its positions in the investors' interest; or(b) the RWAamounts that would be calculated in respect of the Securitised Exposures, if those had not been securitised.
Authorised Firmmust deduct from its CET1 Capital any gain-on-sale and Credit-Enhancing Interest-Only Stripsarising from any securitisation subject to the provisions of the Rulesabove.