MORNBFI Vol. 1 - Planters Development Bank

APP. Q-4611.12.31senior obligation.Domestic versus international debtissuances62. Domestic debt issuances may berated by BSP-recognized domestic creditassessment agencies or by internationalcredit assessment agencies which havedeveloped a national rating systemacceptable to the BSP. Internationallyissueddebt obligations shall be rated byBSP-recognized international creditassessment agencies only.Level of application of the assessment63. External credit assessments for oneentity within a corporate group cannot beused to proxy for the credit assessment ofother entities within the same group. Suchother entities should secure their ownratings.Part IV. Credit Derivatives1. This Part sets out the capitaltreatment for credit derivatives. Banks mayuse credit derivatives to mitigate its creditrisks or to acquire credit risks. For creditderivatives that are used as credit riskmitigants (CRM), the general requirementsfor the use of CRM techniques inparagraphs 21 to 25, Part III.B, have to besatisfied, in addition to the specificoperational requirements for creditderivatives in paragraphs 8 to 14.2. The contents of this Part are justthe general rules to be followed incomputing capital requirements for creditderivatives. A bank, therefore, is expectedto consult the BSP-SES when there isuncertainty about the computation ofcapital requirements, or even aboutwhether a given transaction should betreated under the credit derivativesframework.A. Definitions and general terminology3. Credit derivative – a contractwherein one party called the protectionbuyer or credit risk seller transfers the creditrisk of a reference asset or assets issued bya reference entity or entities, which it mayor may not own, to another party called theprotection seller or credit risk buyer. Inreturn, the protection buyer pays a premiumor interest-related payments to the protectionseller reflecting the underlying credit risk ofthe reference asset/s. Credit derivatives mayrefer to credit default swaps (CDS), totalreturn swaps (TRS), and credit-linked notes(CLN) and similar products.4. Credit default swap – a creditderivative wherein the protection buyer mayexchange the reference asset or anydeliverable obligation of the reference entityfor cash equal to a specified amount, or getcompensated to the extent of the differencebetween the par value and market value ofthe asset upon the occurrence of a definedcredit event.5. Total return swap – a creditderivative wherein the protection buyerexchanges the actual collections andvariations in the prices of the reference assetwith the protection seller in return for a fixedpremium.6. CLn – a pre-funded credit derivativewherein the note holder acts as a protectionseller while the note issuer is the protectionbuyer. As such, the repayment of theprincipal to the note holder is contingentupon the non-occurrence of a defined creditevent. All references to CLNs shall be takento generically include similar instruments,such as credit-linked deposits (CLDs).7. Special purpose vehicle – refers toan entity specifically established to issueCLNs of a single, homogeneous risk classthat are fully collateralized as to principalby eligible collateral instruments listed inparagraph 34, Part III.B, and which areManual of Regulations for Non-Bank Financial InstitutionsQ RegulationsAppendix Q-46 - Page 21