STS Criterion 19. Early amortisation provisions and triggers for termination of the revolving period

Description

Early amortisation provisions/triggers for termination of the revolving period

Content

The transaction documentation should include appropriate triggers for termination of the revolving period where the securitisation is a revolving securitisation, or early amortisation provisions where an SSPE is used within a synthetic securitisation to issue notes placed with investors, including at least the following:

• A deterioration in the credit quality of the underlying exposures to or below a predetermined threshold;
• Losses rise above a predetermined threshold, or losses over a predefined period rise above a predetermined threshold;
• A failure to generate sufficient new underlying exposures that meet the predetermined credit quality.

Rationale

It is important to include safeguards for investors when the securitisation is a revolving securitisation, to ensure that subject to specific triggers the replenishment period truncates and the tranches start to amortise. This criterion is generally relevant for synthetic securitisations, as the use of replenishment periods is very common in synthetic securitisations. The triggers have been adapted to synthetic securitisation.

By contrast, early amortisation is about earlier repayment of principal, and is therefore only relevant for synthetic securitisations using an SSPE to place notes with investors.

This criterion is linked with the requirement for the credit protection payments (that should be contingent upon the outstanding balance of the protected tranche).