BIPRU 9.13 Securitisations of revolving exposures with early amortisation provisions

BIPRU 9.13.1R

Where there is a securitisation of revolving exposures subject to an early amortisation provision, the originator must calculate an additional risk weighted exposure amount in accordance with this section in respect of the risk that the levels of credit risk to which it is exposed may increase following the operation of the early amortisation provision. Accordingly this section sets out how an originator must calculate a risk weighted exposure amount when it sells revolving exposures into a securitisation that contains an early amortisation provision.

[Note: BCD Article 100(1), Annex IX Part 4 points 16 and 68]

Additional capital requirements for securitisations of revolving exposures with early amortisation provisions

BIPRU 9.13.2R

A firm must calculate a risk weighted exposure amount in respect of the sum of the originators interest and the investors interest.

[Note: BCD Annex IX Part 4 point 17]

BIPRU 9.13.3R

For securitisation structures where the securitised exposures comprise revolving exposures and non-revolving exposures, an originator must apply the treatment set out in this section to that portion of the underlying pool containing revolving exposures.

[Note: BCD Annex IX Part 4 point 18]

BIPRU 9.13.4R

For the purposes of this section, subject to BIPRU 9.13.6 R:

  1. (1)

    originators interest means the exposure value of that notional part of a pool of drawn amounts sold into a securitisation, the proportion of which in relation to the amount of the total pool sold into the structure determines the proportion of the cash-flows generated by principal and interest collections and other associated amounts which are not available to make payments to those having securitisation positions in the securitisation;

  2. (2)

    to qualify as such the originators interest may not be subordinate to the investors interest; and

  3. (3)

    investors interest means the exposure value of the remaining notional part of the pool of drawn amounts.

    [Note: BCD Annex IX Part 4 point 19]

BIPRU 9.13.5R

Subject to BIPRU 9.13.7 R, the exposure of the originator associated with its rights in respect of the originators interest must not be treated as a securitisation position but as a pro rata exposure to the securitised exposures as if they had not been securitised.

[Note: BCD Annex IX Part 4 point 20]

BIPRU 9.13.6R

  1. (1)

    For firms using the IRB approach set out in BIPRU 4, this paragraph applies in place of BIPRU 9.13.4 R.

  2. (2)

    For the purposes of this section, originators interest means the sum of:

    1. (a)

      the exposure value of that notional part of a pool of drawn amounts sold into a securitisation, the proportion of which in relation to the amount of the total pool sold into the structure determines the proportion of the cash-flows generated by principal and interest collections and other associated amounts which are not available to make payments to those having securitisation positions in the securitisation; and

    2. (b)

      the exposure value of that part of the pool of undrawn amounts of the credit lines, the drawn amounts of which have been sold into the securitisation, the proportion of which to the total amount of such undrawn amounts is the same as the proportion of the exposure value described in (a) to the exposure value of the pool of drawn amounts sold into the securitisation.

  3. (3)

    To qualify as such the originators interest may not be subordinate to the investors interest.

  4. (4)

    Investors interest means the exposure value of the notional part of the pool of drawn amounts not falling within (2)(a) plus the exposure value of that part of the pool of undrawn amounts of credit lines, the drawn amounts of which have been sold into the securitisation, not falling within (2)(b).

    [Note: BCD Annex IX Part 4 points 69 and 70]

BIPRU 9.13.7R

For firms using the IRB approach set out in BIPRU 4, this paragraph applies in place of BIPRU 9.13.5 R. The exposure of the originator associated with its rights in respect of that part of the originators interest described in BIPRU 9.13.6 R (2)(a) must not be treated as a securitisation position but as a pro rata exposure to the securitised drawn amounts as if they had not been securitised in an amount equal to that described in BIPRU 9.13.6 R (2)(a). The originator must also be considered to have a pro rata exposure to the undrawn amounts of the credit lines, the drawn amounts of which have been sold into the securitisation, in an amount equal to that described in BIPRU 9.13.6 R (2)(b).

[Note: BCD Annex IX Part 4 point 71]

Exemptions from early amortisation treatment

BIPRU 9.13.8R

Originators of the following types of securitisation are exempt from the capital requirement in BIPRU 9.13.1 R:

  1. (1)

    securitisations of revolving exposures whereby investors remain fully exposed to all future draws by borrowers so that the risk on the underlying facilities does not return to the originator even after an early amortisation event has occurred; and

  2. (2)

    securitisations where any early amortisation provision is solely triggered by events not related to the performance of the securitised assets or the originator, such as material changes in tax laws or regulations.

    [Note: BCD Annex IX Part 4 point 21]

Maximum capital requirement

BIPRU 9.13.9R

For an originator subject to the capital requirement in BIPRU 9.13.1 R the total of the risk weighted exposure amounts in respect of its positions in the investors interest (as defined in BIPRU 9.13.4 R or BIPRU 9.13.6 R) and the risk weighted exposure amounts calculated under BIPRU 9.13.1 R must be no greater than the greater of:

  1. (1)

    the risk weighted exposure amounts calculated in respect of its positions in the investors interest (as so defined); and

  2. (2)

    the risk weighted exposure amounts that would be calculated in respect of the securitised exposures by a firm holding the exposures as if they had not been securitised in an amount equal to the investors interest (as so defined).

    [Note: BCD Annex IX Part 4 point 22]

BIPRU 9.13.10R

Deduction of net gains, if any, arising from the capitalisation of future income required under GENPRU 2.2.90 R (Core tier one capital: profit and loss account and other reserves: Securitisation) must be treated outside the maximum amount indicated in BIPRU 9.13.9 R.

[Note: BCD Annex IX Part 4 point 23]

Calculation of risk-weighted exposure amounts

BIPRU 9.13.11R

The risk weighted exposure amount to be calculated in accordance with BIPRU 9.13.1 R must be determined by multiplying the amount of the investors interest (as defined in BIPRU 9.13.4 R or BIPRU 9.13.6 R) by the product of:

  1. (1)

    the appropriate conversion figure as indicated in BIPRU 9.13.16 R, BIPRU 9.13.19 R or BIPRU 9.13.20 R; and

  2. (2)

    the weighted average risk weight that would apply to the securitised exposures if the exposures had not been securitised.

    [Note: BCD Annex IX Part 4 point 24]

BIPRU 9.13.12R

An early amortisation provision must be treated as controlled for the purposes of this section where the following conditions are met:

  1. (1)

    the originator has an appropriate capital/liquidity plan in place to ensure that it has sufficient capital and liquidity available in the event of an early amortisation;

  2. (2)

    throughout the duration of the transaction there is a pro rata sharing between the originators interest and the investors interest (as defined in BIPRU 9.13.4 R or BIPRU 9.13.6 R) of payments of interest and principal, expenses, losses and recoveries based on the balance of receivables outstanding at one or more reference points during each month;

  3. (3)

    the amortisation period is considered sufficient for 90% of the total debt (originators and investors interest (as defined in BIPRU 9.13.4 R or BIPRU 9.13.6 R)) outstanding at the beginning of the early amortisation period to have been repaid or recognised as in default; and

  4. (4)

    the speed of repayment is no more rapid than would be achieved by straight-line amortisation over the period set out in (3).

    [Note: BCD Annex IX Part 4 point 25]

BIPRU 9.13.13R

In the case of a securitisation meeting the following conditions:

  1. (1)

    it is subject to an early amortisation provision;

  2. (2)

    the securitisation is of retail exposures which are uncommitted and unconditionally cancellable without prior notice; and

  3. (3)

    the early amortisation is triggered by the excess spread level falling to a specified level

a firm must, to calculate the appropriate conversion figure referred to in BIPRU 9.13.11 R, compare the three-month average excess spread level with the excess spread levels at which excess spread is required to be trapped.

[Note: BCD Annex IX Part 4 point 26]

BIPRU 9.13.14R

Where the securitisation does not require excess spread to be trapped, the trapping point is deemed to be 4.5 percentage points greater than the excess spread level at which an early amortisation is triggered.

[Note: BCD Annex IX Part 4 point 27]

BIPRU 9.13.15R

The conversion figure to be applied must be determined by the level of the actual three month average excess spread in accordance with BIPRU 9.13.16 R.

[Note: BCD Annex IX Part 4 point 28]

BIPRU 9.13.16R

Table: Conversion figures

This table belongs to BIPRU 9.13.15 R

Securitisations subject to a controlled early amortisation provision

Securitisation subject to a non-controlled early amortisation provision

3 months average excess spread

Conversion figure

Conversion figure

Above level A

0%

0%

Level A

1%

5%

Level B

2%

15%

Level C

10%

50%

Level D

20%

100%

Level E

40%

100%

BIPRU 9.13.17R

In BIPRU 9.13.16 R:

  1. (1)

    Level A means levels of excess spread less than 133.33% of the trapping level of excess spread but not less than 100% of that trapping level;

  2. (2)

    Level B means levels of excess spread less than 100% of the trapping level of excess spread but not less than 75% of that trapping level;

  3. (3)

    Level C means levels of excess spread less than 75% of the trapping level of excess spread but not less than 50% of that trapping level;

  4. (4)

    Level D means levels of excess spread less than 50% of the trapping level of excess spread but not less than 25% of that trapping level; and

  5. (5)

    Level E means levels of excess spread less than 25% of the trapping level of excess spread.

    [Note: BCD Annex IX Part 4 point 29]

BIPRU 9.13.18G

In the case of a securitisation meeting the conditions in this paragraph, a firm may apply to the appropriate regulator for a waiver that would allow a treatment which approximates closely to that prescribed in BIPRU 9.13.13 R to BIPRU 9.13.17 R for determining the conversion figure indicated. If a firm wants such a waiver, it should satisfy the appropriate regulator that:

  1. (1)

    the securitisation is subject to an early amortisation provision of retail exposures;

  2. (2)

    those retail exposures are uncommitted and unconditionally cancellable without prior notice;

  3. (3)

    the early amortisation is triggered by a quantitative value in respect of something other than the three month average excess spread;

  4. (4)

    the firm can establish a quantitative measure equivalent, in relation to the value in (3), to the trapping level of excess spread; and

  5. (5)

    that treatment is a prudent measure of the risk that the levels of credit risk to which it is exposed may increase following the operation of the early amortisation provision (referred to in BIPRU 9.13.1R).

    [Note: BCD Annex IX Part 4 point 30]

BIPRU 9.13.19R

All other securitisations subject to a controlled early amortisation provision of revolving exposures are subject to a credit conversion figure of 90%.

[Note: BCD Annex IX Part 4 point 32]

BIPRU 9.13.20R

All other securitisations subject to a non-controlled early amortisation provision of revolving exposures are subject to a credit conversion figure of 100%.

[Note: BCD Annex IX Part 4 point 33]

Liquidity plans

BIPRU 9.13.21R

A firm which is an originator of a revolving securitisation transaction involving early amortisation provisions should have liquidity plans to address the implications of both scheduled and early amortisation.

[Note: BCD Annex V point 9]