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Dutch Securitisation Association

Par. 10: We have serious concerns about the requirement to provide legal opinions, given the sensitivity
and confidentiality of such opinions. Rather we would like to see the content as suggested in Par. 10 be covered in the representations and warranties. Especially commingling risk and set-off risk are usually not covered by true sale opinions.
Par. 11(b): Perfection (at a later stage) is not a legal concept in all jurisdictions. Further clarification would be helpful.
Par. 13: Please clarify how and to whom the accessibility and availability of the legal opinion should be arranged: at request, on a (pass-word protected) website, to which third parties ? if other than “third party certification agents and competent authorities” should get access, we would prefer to see a limited list. Alternatively, can we use the “confidentiality reasons” to limit the availability of the opinion outside the group of third party certification agents and competent authorities ?
Par. 15: We note that “seller’s insolvency” or “insolvency of the seller” or “insolvent” appear in Article 24(1), (2) and (5), 24(9), 24(19) and 24(20), but is only interpreted for the purpose of Article 24(5).
We would prefer to have one interpretation of insolvency to apply to all STS criteria.
Other comments: Please add “material” between “unremedied” and “breaches”.
Par. 11(a): We do agree with the clarification; examples are not needed.
We do believe that the provided guidance is sufficient and that there are no additional severe clawback provisions to be added.
Par. 12: No further specification is needed; technical insolvency without legal insolvency (or resolution) may not necessarily have to trigger perfection in our view, so we prefer the interpretation as provided.
Par. 16: We do agree, although we note that the original lender may not always be (any longer) in a position to provide these representations and warranties.
Par. 18: Can you confirm that further advances are included in Par. 18(b) or add them to Par. 18 ?
Can you also please add a subparagraph referring to portfolio management in ABCP programs where the intention is to improve the position of the investor, since the investor risk is taken by the sponsor in it’s role of providing full support for the credit risk, so there is no “implicit support” involved.
Par. 19: There are many types of sale outside the ones mentioned under Par. 18 that nevertheless are not intended to actively manage a portfolio (sale for redemption of the notes, sale to facilitate the recovery process etc.). So we propose to delete Par. 19(b).
Par. 25: The interpretation creates a problem for legacy transactions, since it looks back to “at the time of selection” and legacy transactions may have used different default definitions and other criteria at the time of selection.
Par. 32 and Par. 34: The terminology “at the origination of the securitisation” is confusing. Can you please confirm that this refers to “at the time of origination of the exposures”, since credit checks are performed at the time of origination of the exposure and it is impossible to do a credit check for all exposures at the time of selection for a securitisation.
Par. 35: We would appreciate some more guidance on what determines a “significantly higher than the average credit score”.
Par. 27: Reporting as per Article 24(9)(a)(ii) of “time and details of the restructuring as well as their performance since the date of restructuring” will have to be within the infrastructure of the Loan Level Data requirements (Article 7(1)(a)) and in aggregated format in the Investor Report (Article 7(1)(e)(i)).
Par. 28: “neither the debtor nor the guarantor” is very restrictive. This way, the availability of a guarantee as additional security, would become an additional risk of not getting STS status. This cannot be the intention, so please replace this by “either the debtor or the guarantor”.
Par. 29 and Par. 30: For the avoidance of doubt, can you please confirm that not all potential sources of information have to be checked at origination of an exposure ?
Par. 31: The reference to all exposures of an obligor rather than the restructured exposure for determining credit impairedness, is not in line with market practice and very detrimental to debtors, and especially retail and SME debtors.
Par. 36: We would like to see an exception for “ramp-up” or “warehousing” structures, where it is not really possible to meet this requirement.
Par. 40: While Par. 40 of the Background and rationale states that “this criterion should not aim to exclude ….leasing transactions from STS securitisation”, we do not see this reflected explicitly in the guidelines.
Par. 39: A fixed percentage for all asset classes does not reflect the different nature of the asset classes and especially not the different maturity profiles of asset classes.
So we would be in favor of more differentiation in asset classes.
Par. 42: Can you give further guidance on “not unusually limited”, and especially what determines a
“major share” and “relevant scenarios”?
Par. 43(e): We would appreciate more elaboration on the “concise sensitivity analysis”. What are the required scenarios?
Par. 44: Hedging multiple risks with one measure can be beneficial to the investor if not all the risks fully materialise and as long as the measure is large enough to cover the sum of the potential risks.
Par. 45: Can you please indicate how and to whom information/reasoning should be disclosed on a continuous basis ? Can this be done in the Investor Report ?
Par. 48: We do agree that this confirmation is required, but wonder whether a simple yes/no will be sufficient or that more explanation may sometimes be needed.
Would it be sufficient to provide a generic description or summary?
Remedies and actions can be very client specific and it might be difficult to specify these in advance.
We do agree.
Par. 56: We do agree, but would appreciate if you could indicate that the exposures you mention in
Par. 56 are examples and not an exhaustive list.
As we have indicated in our response (like on Q8) on the Consultation on this Delegated Regulation, there remains a lack of clarity on how the definitions will work out for mixed pools. We would appreciate if the guidelines could list some more specific examples of homogeneous pools.
Par. 57(b): Can you please confirm that ABCP program’s cost of funds are not “interest rates that cannot be observed in the commonly accepted market place” (Par. 54 of the Background and rationale).
Par. 64: Instead of “a seller’s default”, we would prefer reference to “an unremedied and unwaived seller’s default”, since a simple seller’s default will not always lead to enforcement or acceleration.
Principal payments will not exclusively be used to repay investors when there are obligations ranking higher in the waterfall (taxes, corporate services).
The reference to Article 24(10) does not seem to be correct. Should it be Article 24(7) ?
Par. 70(a): We do not understand the rationale for looking back at changes in past underwriting standards. Investors prefer to see different vintages of exposures in one pool in order to mitigate the impact of economic cycles and the resulting (countercyclical) changes in underwriting standards.
Other comments: We need more guidance on how “any material changes from prior underwriting standards shall be fully disclosed to potential investors without undue delay”: how should this be disclosed (in Investor Reports ?), what is undue delay (in the next Investor Report ?) and especially how do we determine who is a potential investor ?
Par. 72: We do agree with the principles-based approach and, more specifically, the principles as described in Par. 72.
With regard to Par. 72(d), can you please confirm that this implies that if an originator holds a proper license from a competent authority it meets the requirement of having expertise ?
Can you please confirm that if the origination is outsourced to a sufficiently experienced (according to Par. 72) third party, this criterion is also met ?
Par. 73: We are somewhat surprised by the 5 year requirement in Par. 73, especially where the level 1 text does not refer to time periods. In practice it will be very unlikely that 2 members of the management body and all senior staff responsible for the origination of an entity will have at least 5 years of experience with similar exposures.
The requirement also seems not suitable for corporations originating trade receivables, where the expertise should be defined in terms of running the business that give rise to the exposures (receivables).
Par. 67: For the purpose of comparing underwriting criteria it is better to look at asset categories.
Eligibility criteria are not taken into account when exposures are underwritten and are reflective of a mix of factors (investor appetite, funding needs) that are not always directly related to underwriting.
Par. 75: An insolvency-related event with the servicer should not automatically trigger a replacement of the servicer.
Par. 76: This paragraph is confusing and can better be deleted.
Par. 79: Should the 5% be verified by the program administrator or the seller/servicer and with a certain frequency, or is the external verification of a sample sufficient ?
Par. 81: We agree with verification covering just Art. 24 (9), (10) and (11).
The 75% replenishment implies a very high frequency of external verification for trade receivable transactions. We suggest a floor of not more frequently than annual verification.
Par. 84: We prefer to keep this as simple as possible and leave the sample specifications to the external party performing the verification.
Par. 88: Can you please confirm that the maximum maturity “as defined in the documentation” can be
Interpreted for trade receivables as the contractual payment terms between the seller and its debtor ?
Cash flows seem to be the more natural choice for securitisations.
Par. 89: We agree with the interpretation.
Par. 90-92: It may be easier to allow all credit enhancement structures in ABCP conduits, with the exception of the one where multiple classes of Commercial Paper are issued (the one in Par. 92).
Par. 93: We agree with the interpretation.
Par. 94: Please see our comments on Q14.
With regard to the expertise of the sponsor, we refer to our comments on the Seller’s expertise (Q21-23), with the amendment that “originating and underwriting” should be interpreted as “credit underwriting”.
Can you please confirm that this only refers to the servicer at transaction level and not the program administrator at program level ?
Par. 99: We do agree with the principles-based approach and, more specifically, the principles as described in Par. 99.
With regard to Par. 99(d), can you please confirm that this implies that if a servicer holds a proper license from a competent authority it meets the requirement of having expertise ?
Can you please confirm that if the servicing is outsourced to a sufficiently experienced (according to
Par. 99) third party, this criterion is also met ?
The references to origination, originating and underwriting should be replaced by references to servicing.
Par. 100: We are somewhat surprised by the 5 year requirement in Par. 100, especially where the level 1 text does not refer to time periods. In practice it will be very unlikely that 2 members of the management body and all senior staff responsible for the servicing of an entity will have at least 5 years of experience with similar exposures.
Well run organisations typically build their senior teams around people with different backgrounds and not just (f.i.) mortgage servicers, so this requirement increases the entry barrier for new entrants.
And the reference to Par. 101(a) in Par. 100(b)(iii) does not seem to be correct. Should it be Par. 100(a) ?
Can you please confirm that ABCP program’s can also contain transactions that are not themselves securitisations ?
Rob Koning
0031614229842