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Single Rulebook Q&A

Question ID: 2014_1139
Legal act : Regulation (EU) No 575/2013 as amended by Regulation (EU) 2019/876 – CRR2
Topic : Securitisation and Covered Bonds
Article: 259
Paragraph: 2
COM Delegated or Implementing Acts/RTS/ITS/GLs: Not applicable
Article/Paragraph : -
Name of institution / submitter: Association of German banks
Country of incorporation / residence: Germany
Type of submitter: Industry association
Subject matter : Inferred ratings for unrated IRBA market value hedging transactions (e.g. interest rate / cross currency swaps)
Question: For the purposes of using inferred ratings, is it allowed to use a specific treatment when inferring external ratings to unrated IRBA market value hedging transactions?
Background on the question: Article 259(2) CRR allows an institution to infer an external rating of a reference position to an unrated IRBA securitisation position if the following requirements are met: 1. the reference position is subordinate in all respects to the unrated securitisation position 2. the maturity of the reference position is equal to or longer than that of the unrated position 3. any inferred rating is updated on an ongoing basis to reflect any changes in the credit assessment of the reference position. According to Article 245(3) CRR, securitisation positions must include exposures to a securitisation arising from interest rate or currency derivative contracts, the so called ‘market value hedging transactions’. The CRR does not contain any specific rules for determining the IRBA risk weight of those exposures, but does acknowledge that market value hedging transactions warrant a specific treatment, e.g. 1. Article 255(1)(d) CRR allows for applying a 50% CCF for unrated liquidity facilities if the repayment is not subordinated to any claims other than to claims arising in respect of market value hedging transactions 2. Article 261(1) CRR allows for classifying a securitisation tranche as most senior although market value hedging transactions exist that are more senior.
Date of submission: 05/05/2014
Published as Final Q&A: 02/10/2015
EBA answer:

The reference to "Market Value Hedging Transactions" is not a defined term in the context of Regulation (EU) No 575/2013 (CRR). However, where an institution acts as a derivative or hedge counterparty to a securitisation transaction, the hedge shall be deemed to become a securitisation position when it is subject to the transaction's waterfall and hence exposed to the credit risk of the securitised exposures or the securitisation positions (particular cases of exposure to the credit risk of a securitisation position).

For the purposes of using inferred ratings, the provisions set out in Article 259(2) of the CRR requires that all of the following conditions are satisfied:

a) The reference positions shall be subordinate in all respects to the unrated securitisation position;

b) The maturity of the reference positions shall be equal to or longer than that of the  unrated position in question;

c) On an ongoing basis, any inferred rating shall be updated to reflect any changes in the credit assessment of the reference positions.

Status: Final Q&A
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