MORNBFI Vol. 1 - Planters Development Bank

APP. Q-4611.12.31upon the performance of the underlyingpool.5. Originating bank – a bank thatoriginates directly or indirectly underlyingexposures included in the securitization.6. Clean-up call – an option thatpermits the securitization exposures to becalled before all of the underlyingexposures or securitization exposures havebeen repaid. In the case of traditionalsecuritizations, this is generallyaccomplished by repurchasing theremaining securitization exposures oncethe pool balance or outstanding securitieshave fallen below some specified level. Inthe case of a synthetic transaction, the cleanupcall may take the form of a clause thatextinguishes the credit protection.7. Credit enhancement – a contractualarrangement in which the bank retains orassumes a securitization exposure and, insubstance, provides some degree of addedprotection to other parties to thetransaction.8. Early amortization provisions –mechanisms that, once triggered, allowinvestors to be paid out prior to theoriginally stated maturity of the securitiesissued. For risk-based capital purposes, anearly amortization provision will beconsidered either controlled or noncontrolled.A controlled early amortizationprovision must meet all of the followingconditions:a) The bank must have an appropriatecapital/liquidity plan in place to ensure thatit has sufficient capital and liquidityavailable in the event of an earlyamortization;b) Throughout the duration of thetransaction, including the amortizationperiod, there is the same pro rata sharingof interest, principal, expenses, losses andrecoveries based on the bank’s andinvestors’ relative shares of the receivablesoutstanding at the beginning of each month;c) The bank must set a period foramortization that would be sufficient for atleast ninety percent (90%) of the total debtoutstanding at the beginning of the earlyamortization period to have been repaid orrecognized as in default; andd) The pace of repayment should notbe any more rapid than would be allowedby straight-line amortization over the periodset out in criterion (c).An early amortization provision thatdoes not satisfy the conditions for acontrolled early amortization provision willbe treated as non-controlled earlyamortization provision.9. Eligible liquidity facilities – an offbalancesheet securitization exposure shallbe treated as an eligible liquidity facility ifthe following minimum requirements aresatisfied:a) The facility documentation mustclearly identify and limit the circumstancesunder which it may be drawn. Draws underthe facility must be limited to the amountthat is likely to be repaid fully from theliquidation of the underlying exposures andany seller-provided credit enhancements. Inaddition, the facility must not cover anylosses incurred in the underlying pool ofexposures prior to a draw, or be structuredsuch that draw-down is certain (as indicatedby regular or continuous draws);b) The facility must be subject to anasset quality test that precludes it from beingdrawn to cover credit risk exposures thatare considered non-performing underexisting BSP regulations. In addition,liquidity facilities should only fundexposures that are externally ratedinvestment grade at the time of funding;c) The facility cannot be drawn afterall applicable (e.g., transaction-specific andprogram-wide) credit enhancements fromwhich the liquidity would benefit have beenManual of Regulations for Non-Bank Financial InstitutionsQ RegulationsAppendix Q-46 - Page 27