STS Criterion 17. Requirements after enforcement and acceleration notice

Description

Requirements after enforcement/acceleration notice

Content

Following the occurrence of an enforcement or acceleration event, the enforcement or acceleration should be initiated immediately and sequential amortisation should continue to apply to all tranches so that, as the underlying exposures amortise, the outstanding amount of all tranches is reduced in order of their seniority.

Where an SSPE is used within a synthetic securitisation, following an enforcement or acceleration notice no amount of cash should be trapped in the SSPE beyond what is necessary to ensure the operational functioning of the SSPE or the orderly repayment of investors in accordance with the contractual terms of the securitisation.

Rationale

It is appropriate that arrangements are in place for the protection of protection buyers in case of adverse circumstances affecting the SSPEs or, where applicable, the collateral (such as, insolvency of SSPE or inaccessibility of collateral), which has a consequence of immediately initiating the enforcement/acceleration and applying sequential amortisation to all tranches of the synthetic securitisation.

The requirements applicable when enforcement/acceleration has been delivered have been adapted compared to the STS requirements applicable for traditional securitisation, to reflect that not all synthetic securitisation include the use of an SSPE and that even in case of the use of an SSPE in balance sheet synthetic securitisations there is no legal transfer of title to the underlying exposures to the SSPE. Due to the latter, a requirement that does not allow the automatic liquidation of the underlying exposures at market value is not needed for synthetic securitisations.