STS Criterion 2. Representations and warranties

Description

Representations and warranties

Content

The securitisation documentation should contain the representations and warranties provided by the protection buyer that the following requirements in respect of the underlying exposures of a synthetic securitisation are met:

• Title to and accounting of the exposures: Where the protection buyer is a credit institution or insurance company, the protection buyer has full right, good and valid title to the underlying exposures and their associated ancillary rights and accounts for the credit risk of the underlying exposures in his regulatory balance sheet. Where the protection buyer is not a credit institution or insurance company, the protection buyer has full right, good and valid title to the underlying exposures and their associated ancillary rights.
• Compliance of the exposures with all eligibility criteria set out in the securitisation documentation: Each underlying exposure meets all eligibility criteria, representations and warranties and any other conditions, other than a credit event, for a protection payment in accordance with the credit protection agreement within the securitisation documentation.
• Financing agreements’ validity and enforceability: The contractual agreement underlying each exposure contains a legal, valid and binding obligation of the obligor, enforceable in accordance with its terms, to pay the sums of money specified in it.
• Underwriting standards: The underlying exposures meet the standard underwriting criteria that are not less stringent than those criteria, which the originator applies to similar exposures that are not securitised.
• No obligor default or other material breach: To the best knowledge of the protection buyer none of the obligors with respect to the underlying exposures is in material breach or default of any obligations under any loan agreements.
• No untrue information: There is no untrue information on the particulars of the underlying exposures contained in the securitisation documentation.

As at the closing date, in relation to each underlying exposure, no contractual agreement between the obligor and the original lender has been subject to any variation, amendment, modification, waiver or exclusion of time of any kind which in any material way adversely affects the enforceability or collectability of the underlying exposure.

Rationale

To enhance the legal certainty with respect to the underlying exposures and enforceability with respect to credit protection agreement, the securitisation documentation should contain specific representations and warranties provided by the protection buyer in respect of the characteristics of those underlying exposures and of the correctness of the information included in the securitisation documentation.