The sponsor should make representations and warranties to investors that the criteria at the transaction level are met, and explain how this is the case on an overall basis. Only if specified should this be done for each transaction.

Provided that each individual underlying transaction is homogeneous in terms of asset type, a conduit may be used to finance transactions of different asset types.

Program-wide credit enhancement should not prevent a conduit from qualifying for STC, regardless of whether such enhancement technically creates a type of resecuritisation.

The assets underlying a transaction in a conduit should be credit claims or receivables that are homogeneous, in terms of asset type. (This does not automatically exclude securitisations of equipment leases and securitisations of auto loans and leases from the short-term STC framework.)

The assets underlying each individual transaction in a conduit should not be composed of “securitisation exposures” as defined in the Central Bank’s Standard on Required Capital for Securitisation Exposures. The transaction-level requirement is still met if the conduit does not purchase the underlying asset with a refundable purchase price discount but instead acquires a beneficial interest in the form of a note which itself might qualify as a securitisation exposure, as long as the securitisation exposure is not subject to any further tranching (i.e. has the same economic characteristic as the purchase of the underlying asset with a refundable purchase price discount).

Credit claims or receivables underlying a transaction in a conduit should have contractually identified periodic payment streams relating to rental,¹¹ principal, interest, or principal and interest payments. Credit claims or receivables generating a single payment stream would equally qualify as eligible. Any referenced interest payments or discount rates should be based on commonly encountered market interest rates, but should not reference complex or complicated formulae or exotic derivatives.

In order to provide investors with sufficient information on the performance history of the asset types backing the transactions, the sponsor should make available to investors sufficient loss performance data on claims and receivables with substantially similar risk characteristics, such as delinquency and default data on similar claims, and for a time period long enough to permit meaningful evaluation. The sponsor should disclose to investors the sources of such data and the basis for claiming similarity to credit claims or receivables financed by the conduit.

Such loss performance data may be provided on a stratified basis. Examples of such data might include:

• •all materially relevant data on the conduit’s composition (outstanding balances, industry sector, obligor concentrations, maturities etc) and conduit’s overview; and
• •all materially relevant data on the credit quality and performance of underlying transactions, allowing investors to identify collections, and, as applicable, debt restructuring, forgiveness, forbearance, payment holidays, repurchases, delinquencies and defaults.

In order to provide the sponsor with sufficient information on the performance history of each asset type backing the transactions and to conduct appropriate due diligence and to have access to a sufficiently rich data set to enable a more accurate calculation of expected loss in different stress scenarios, verifiable loss performance data, such as delinquency and default data, should be available for credit claims and receivables with risk characteristics substantially similar to those being financed by the conduit, for a time period long enough to permit meaningful evaluation by the sponsor.

The sponsor should, to the best of its knowledge and based on representations from sellers, make representations and warranties to investors that the STC criteria at the transaction level are met with respect to each transaction.

The sponsor should obtain representations from sellers that the credit claims or receivables underlying each individual transaction are not, at the time of acquisition of the interests to be financed by the conduit, in default or delinquent or subject to a material increase in expected losses or of enforcement actions.

The sponsor should make representations and warranties to investors that:

1. 1.It has taken steps to verify that, for the transactions in the conduit, any underlying credit claims and receivables have been subject to consistent underwriting standards, and explain how; and
2. 2.When there are material changes to underwriting standards, it will receive from sellers disclosure about the timing and purpose of such changes.

The sponsor should also inform investors of the material selection criteria applied when selecting sellers (including where they are not financial institutions).

The sponsor should ensure that sellers (in their capacity as original lenders) in transactions with the conduit demonstrate to it that:

The sponsor should also ensure that sellers disclose to it the timing and purpose of material changes to underwriting standards.

The sponsor should:

1. 1.Provide representations and warranties to investors about the checks, in terms of their nature and frequency, it has conducted regarding enforceability of underlying assets; and
2. 2.Disclose to investors the receipt of appropriate representations and warranties from sellers that the credit claims or receivables being transferred to the transactions in the conduit are not subject to any condition or encumbrance that can be foreseen to adversely affect enforceability in respect of collections due.

The sponsor should ensure that credit claims or receivables transferred to or through a transaction financed by the conduit:

An in-house legal opinion or an independent third-party legal opinion must support the claim that the true sale and the transfer of assets under the applicable laws comply with points (a) and (b) at the transaction level.

The sponsor should be able to assess thoroughly the credit risk of the asset pool prior to its decision to provide full support to any given transaction or to the conduit.

The sponsor should ensure that the transactions in the conduit effect true sale such that the underlying credit claims or receivables:

1. 1.Are enforceable against the obligor;
2. 2.Are beyond the reach of the seller, its creditors, or liquidators and are not subject to material re-characterization risks or claw-back risks (in which the insolvency or bankruptcy of the seller could result in the assets being taken back from the pool by creditors or liquidators);
3. 3.Are not effected through credit default swaps, derivatives or guarantees, but by a transfer¹⁴ of the credit claims or the receivables to the transaction; and
4. 4.Demonstrate effective recourse to the ultimate obligation for the underlying credit claims or receivables and are not a re-securitisation position.

The sponsor should ensure that, in applicable jurisdictions, for conduits employing transfers of credit claims or receivables by other means, sellers can demonstrate to it the existence of material obstacles preventing true sale at issuance¹⁵ and should clearly demonstrate the method of recourse to ultimate obligors.¹⁶ In such jurisdictions, any conditions where the transfer of the credit claims or receivables is delayed or contingent upon specific events and any factors affecting timely perfection of claims by the conduit should be clearly disclosed.

The sponsor should ensure that it receives from the individual sellers (in their capacity either as original lender or servicer) representations and warranties that the credit claims or receivables being transferred to or through the transaction are not subject to any condition or encumbrance that can be foreseen to adversely affect enforceability in respect of collections due.

To assist investors in conducting appropriate due diligence prior to investing in a new program offering, the sponsor should provide to potential investors sufficient aggregated data that illustrate the relevant risk characteristics of the underlying asset pools in accordance with applicable laws.

To assist investors in conducting appropriate and ongoing monitoring of their investments’ performance and so that investors who wish to purchase commercial paper have sufficient information to conduct appropriate due diligence, the sponsor should provide timely and sufficient aggregated data that convey the relevant risk characteristics of the underlying pools in accordance with applicable laws. The sponsor should ensure that standardized investor reports are readily available to current and potential investors at least monthly. Cut-off dates of the aggregated data should be aligned with those used for investor reporting.

The sponsor should ensure that the individual sellers (in their capacity as servicers) provide it with:

The seller may delegate some of these tasks, in which case the sponsor should ensure that there is appropriate oversight of the outsourced arrangements.

The sponsor should provide the liquidity facility and the credit protection support¹⁷ for any ABCP program issued by a conduit. Such facility and support should ensure that investors are fully protected against credit risks, liquidity risks and any material dilution risks of the underlying asset pools financed by the conduit. On that basis, investors should be able to rely on the sponsor to ensure timely and full repayment of the commercial paper. This is not a comprehensive list of risks, but rather provides typical examples.

The full support provided should be able to irrevocably and unconditionally pay the ABCP liabilities in full and on time.

Unless the underlying pool of credit claims or receivables is sufficiently granular and has sufficiently distributed repayment profiles, the sponsor should ensure that the repayment of the credit claims or receivables underlying any of the individual transactions relies primarily on the general ability and willingness of the obligor to pay rather than the possibility that the obligor refinances or sells the collateral and that such repayment does not primarily rely on the drawing of an external liquidity facility provided to this transaction.

The sponsor should ensure that any payment risk arising from different interest rate and currency profiles that is not mitigated at transaction level, or that may arise at the conduit level, is appropriately mitigated.

The sponsor should also ensure that derivatives are used for genuine hedging purposes only and that hedging transactions are documented according to industry-standard master agreements.

The sponsor should provide sufficient information to investors to allow them to assess how the payment risk arising from the different interest rate and currency profiles of assets and liabilities is appropriately mitigated, whether at the conduit level or at the transaction level.

To reduce the payment risk arising from the different interest rate and currency profiles of assets and liabilities, if any, and to improve the sponsor’s ability to analyze cash flows of transactions, the sponsor should ensure that interest rate and foreign currency risks are appropriately mitigated. The sponsor should also ensure that derivatives are used for genuine hedging purposes only and that hedging transactions are documented according to industry-standard master agreements.

The commercial paper issued by the ABCP program should not include extension options or other features which may extend the final maturity of the asset-backed commercial paper, where the right to trigger does not belong exclusively to investors.

The sponsor should:

To prevent the conduit from being subjected to unexpected repayment profiles from the transactions, the sponsor should ensure that:

1. 1.Priorities of payments are clearly defined at the time of acquisition of the interests in these transactions by the conduit; and
2. 2.Appropriate legal comfort regarding the enforceability is provided.

For all transactions which qualify as a securitisation, the sponsor should ensure that all triggers affecting the cash flow waterfall, payment profile or priority of payments are clearly and fully disclosed to the sponsor in both the transactions’ documentation and reports, with information in the reports that clearly identifies any breach status, the ability for the breach to be reversed and the consequences of the breach. Reports should contain information that allows sponsors to easily ascertain the likelihood of a trigger being breached or reversed. Any triggers breached between payment dates should be disclosed to sponsors on a timely basis in accordance with the terms and conditions of the transaction documents.

For any of the transactions where the beneficial interest held by the conduit qualifies as a securitisation position, the sponsor should ensure that any subordinated positions do not have inappropriate payment preference over payments to the conduit (which should always rank senior to any other position) and which are due and payable.

Transactions featuring a revolving period should include provisions for appropriate early amortization events and/or triggers of termination of the revolving period, including, notably: (i) deterioration in the credit quality of the underlying exposures; (ii) a failure to replenish sufficient new underlying exposures of similar credit quality; and (iii) the occurrence of an insolvency-related event with regard to the individual sellers.

To ensure that debt forgiveness, forbearance, payment holidays, restructuring, dilution and other asset performance remedies can be clearly identified, policies and procedures, definitions, remedies and actions relating to delinquency, default, dilution or restructuring of underlying debtors should be provided in clear and consistent terms, such that the sponsor can clearly identify debt forgiveness, forbearance, payment holidays, restructuring, dilution and other asset performance remedies on an ongoing basis.

For each transaction which qualifies as a securitisation, the sponsor should ensure that it receives, both before the conduit acquires a beneficial interest in the transaction and on an ongoing basis, the liability cash flow analysis or information on the cash flow provisions allowing appropriate analysis of the cash flow waterfall of these transactions.

To provide clarity to investors, the sponsor should make sufficient information available in order for investors to understand their enforcement rights on the underlying credit claims or receivables in the event of insolvency of the sponsor.

For each transaction, the sponsor should ensure that, in particular upon insolvency of the seller or where the obligor is in default on its obligation, all voting and enforcement rights related to the credit claims or receivables are, if applicable:

1. 1.Transferred to the conduit; and
2. 2.Clearly defined under all circumstances, including with respect to the rights of the conduit versus other parties with an interest (e.g. sellers), where relevant.

To help investors understand fully the terms, conditions, and legal information prior to investing in a new program offering and to ensure that this information is set out in a clear and effective manner for all program offerings, the sponsor should ensure that sufficient initial offering documentation for the ABCP program is provided to investors (and readily available to potential investors on a continuous basis) within a reasonable period of time prior to issuance, such that the investor is provided with full disclosure of the legal information and comprehensive risk factors needed to make informed investment decisions. These should be composed such that readers can readily find, understand and use relevant information.

The sponsor should ensure that the terms and documentation of a conduit and the ABCP program it issues are reviewed and verified by an appropriately experienced and independent legal practice prior to publication and in the event of material changes. The sponsor should notify investors in a timely fashion of any changes in such documents that have an impact on the structural risks in the ABCP program.

In order to align the interests of those responsible for the underwriting of the credit claims and receivables with those of investors, a material net economic exposure should be retained by the sellers or the sponsor at the transaction level, or by the sponsor at the conduit level.

Ultimately, the sponsor should disclose to investors how and where a material net economic exposure is retained by the seller at the transaction level or by the sponsor at the transaction or the conduit level, and demonstrate the existence of a financial incentive in the performance of the assets.

Maturity transformation undertaken through ABCP conduits should be limited. The sponsor should verify and disclose to investors that the weighted average maturity of all the transactions financed under the ABCP conduit is three years or less.

This number should be calculated as the higher of:

1. the exposure-weighted average residual maturity of the conduit’s beneficial interests held or the assets purchased by the conduit in order to finance the transactions of the conduit;¹⁹

2. the exposure-weighted average maturity of the underlying assets financed by the conduit calculated by:

Where it is impractical for the sponsor to calculate the pool-level weighted average maturity in Step 2a (because the pool is very granular or dynamic), sponsors may instead use the maximum maturity of the assets in the pool as defined in the legal agreements governing the pool (e.g. investment guidelines).

The sponsor should, based on the representations received from seller(s) and all other parties responsible for originating and servicing the asset pools, make representations and warranties to investors that:

1. 1.The various criteria defined at the level of each underlying transaction are met, and explain how; and
2. 2.The seller’s (or sellers’) policies, procedures and risk management controls are well documented, adhere to good market practices and comply with the relevant regulatory regimes; and that strong systems and reporting capabilities are in place to ensure appropriate origination and servicing of the underlying assets.

The sponsor should be able to demonstrate expertise in providing liquidity and credit support in the context of ABCP conduits, and that it is supported by a management team with extensive industry experience.

The sponsor should at all times act in accordance with reasonable and prudent standards. The policies, procedures and risk management controls of the sponsor should be well documented, and the sponsor should adhere to good market practices and relevant regulatory regime. There should be strong systems and reporting capabilities in place at the sponsor.

The party or parties with fiduciary responsibility should act on a timely basis in the best interests of the investors.

The sponsor should ensure that it receives representations from the seller(s) and all other parties responsible for originating and servicing the asset pools that they:

1. 1.Have well documented procedures and policies in place to ensure appropriate servicing of the underlying assets;
2. 2.Have expertise in the origination of assets that are the same as or similar to those in the asset pools;
3. 3.Have extensive servicing and workout expertise, thorough legal and collateral knowledge and a track record in loss mitigation for the same or similar assets;
4. 4.Have expertise in the servicing of the underlying credit claims or receivables; and
5. 5.Are supported by a management team with extensive industry experience.

To help provide full transparency to investors and to assist them in the conduct of their due diligence, the sponsor should ensure that the contractual obligations, duties and responsibilities of all key parties to the conduit, both those with a fiduciary responsibility and the ancillary service providers, are defined clearly both in the initial offering and in any relevant underlying documentation²⁰ of the conduit and the ABCP program it issues.

The sponsor should also make representations and warranties to investors that the duties and responsibilities of all key parties are clearly defined at the transaction level.

The sponsor should ensure that the initial offering documentation disclosed to investors contains adequate provisions regarding the replacement of key counterparties of the conduit (e.g. bank account providers and derivatives counterparties) in the event of failure or non-performance or insolvency or deterioration of creditworthiness of any such counterparty.

The sponsor should also make representations and warranties to investors that provisions regarding the replacement of key counterparties at the transaction level are well documented.

The sponsor should provide sufficient information to investors about the liquidity facility and credit support provided to the ABCP program for them to understand its functioning and key risks.

The sponsor should conduct due diligence with respect to the transactions on behalf of the investors.

To assist the sponsor in meeting its fiduciary and contractual obligations, the duties and responsibilities of all key parties to all transactions (both those with a fiduciary responsibility and the ancillary service providers) should be defined clearly in all the documentation underlying these transactions and made available to the sponsor.

The sponsor should ensure that provisions regarding the replacement of key counterparties (in particular, the servicer or liquidity provider) in the event of failure or nonperformance or insolvency or other deterioration of any such counterparty for the transactions are well documented (in the documentation of these individual transactions).

To enhance the transparency and visibility of all receipts, payments and ledger entries at all times, the sponsor should ensure that, for all transactions, the performance reports include all of the following: the transactions’ income and disbursements, such as scheduled principal, redemption principal, scheduled interest, prepaid principal, past due interest and fees and charges, and delinquent, defaulted, restructured and diluted amounts; and accurate accounting for amounts attributable to principal and interest deficiency ledgers.