assessing abs players table
TRANSCRIPT
Players (type) Contractual duties Item number or form
Basic disclosure Required documents Detailed Content
Originator/sponsors (mostly large financial institutions, commercial enterprises, big real estate companies & medium sized enterprises)
This entity initiates the securitization program for lower costs of borrowing, alternative source of borrowing and accelerate cash receipts
1104, prospectus, form abs 15-G, prospectus
Provide the following information about the sponsor State the sponsor’s name
and describe the sponsor’s form of organization
Describe the general character of the sponsor’s business
Securitization programo General discussion
regarding assets of any type
o Detailed discussion regarding assets of the type being securitized
o Size, composition and growth of relevant asset portfolio
o Other information material to analysis of the pool asset, such as prior securitization, early amortization or defaults
Describe the sponsor’s material roles and responsibilities in its securitization program
If applicable, disclose pool assets repurchase activity for all of the sponsor’s securitization
Agreement to transfer the receivables
Asset purchase & sale agreement or loan (consignment/pledge) agreement
Agreements to provide credit enhancement or liquidity support (if applicable)
Clean-up agreement Servicing agreement (if it
also acts as a servicer)
Must be clear Contains representations,
warranties and any criteria the receivables must satisfy
The SPV’s recourse and rights against the originator for breach of representation,, warranty or contractual terms by the originator
Originator’s obligation to repurchase any receivable not eligible at the representation
If the originator also acts as a servicer, it will be a provision giving the right to the originator to purchase all the remaining securities when it reaches a certain level
1 | Research conducted by Arthur Mboue
Debtor (any type of customers of the originator-each person liable for the full or partial payment or performance of any loan or debt whether such person is obligated directly, indirectly, primarily, secondarily, jointly or severally)
They are the originator’s obligors. Their credit scores and historic payment experience are nucleus to a success of the full ABS program. They do not need to be notified of, consent to the transfer of the receivables because they are not participating parties in the securitization program.Estimate of losses or allowance for losses requires consideration of historical loss experience adjusted for current condition and judgments about the probable effects of relevant observable data including present economic conditions such as delinquency rates for health of specific customers and market sectors, collateral values and the present and expected future levels of interest rates. The underlying assumptions, estimates and assessments used to provide for losses are updated periodically to reflect current conditions. These assessments are subject to regulatory examinations which can result in change to these assumptions or worse.
1112, prospectus, FWP, 10-D, 10-K
Provide information about each significant obligor and the nature of the obligation
For obligors that are not ABS issuers, provide information
o Summary financial information for 10% obligors
o Audited financial statement for 20% obligors
If the obligor is An issuing entity of ABS: the discussion requirement under items 1104, 1115, 1117, and 1119 of Reg AB applied
Bill Sale notice or sale
agreement Lease or rent contracts
Item number Warranty duration of buyer Price agreed on Agreed Installation payments
Investors (financial institutions, insurance companies, pension
Purchase the securities issued by the SPV
Receive interest and principal payments from
Prospectus, 1111
To enhance their knowledge of the ABS before any investment, investors would also rely on
Security purchase agreement
Security trust deed (certificate)
Index of stock purchase agreement
o Definitiono Sale and purchase of
2 | Research conducted by Arthur Mboue
funds, hedge fund and wealthy individuals)
the paying agent as scheduled
o State of Pool assetso Tax matterso Legal proceedings
Pool assets: Describe the pool assets with
a tabular representation of average pool to sales, average balance, weighted average coupon, average age, remaining term, average loan to value or simple ratio and weighted average standardized credit score or other applicable measure of obligor credit quality
o Describe the types of pool assets to be securitized
o Describe material terms of the pool assets
o Describe solicitation, credit granting
o Provide the method and criteria by which the pool assets were selected for the transactions
o The cut-off rate or similar date for establishing the composition of the asset pool, if applicable
o Identify briefly legal and regulatory provisions
o Provide the nature
Stock certificates Offering memorandum Investor qualification
questionnaire (for PPM) Subscription agreement Agreement to become a
party to shareholders
shareso Representation and
warranties of sellero Representation and
warranty of buyero Certain covenantso Conditions precedento Termination policieso Indemnification
3 | Research conducted by Arthur Mboue
of the review of the assets performed by an issuer or sponsor
o Disclose which entity determines that those assets should be included in the pool despite
o Provide a tabular presentation of the pool asset characteristics
Chosen by the sponsor of the programArranger/structurer (financial institution)
Design the structure of the program
Design the structure of the risk profile of the receivables in order to create tranches and their sequential payments schedules
Design a credit arbitrage strategy
Arranges credit enhancement
Design a liquid strategy Design a profit extraction
method List and make
arrangement of counterparties to take on risks
Ensures that the transaction proceeds through each step is closed
Make agreement with first buyers of the securities
prospectus Disclose the arranger name and its form of organization
Describe the character of the arranger business
Describe the arranger material roles and responsibilities in its securitization
Disclose the arranger relevant facts its participation in structuring the transactions
Disclose the arranger other information including the size, type and growth
Disclose the arranger’s experience and the period of time that the arranger has been engaged in the securitization
Subscription agreement Agreement between the
corporation and investment bankers
Agreement among bankers
Agreements between investment bankers and underwriters, dealers or QIB
Offering memorandum, prospectus (offering circular)
Purchase agreement between the company and the initial purchasers
Legal opinions and Comfort letters
Provisions related to the initial purchase price for the securities on the issue date, subject to conditions relating to
o The SPV’s legal statuso Listing and rating of
the securities Provision requiring a
cancellation of a sale to investors if a material adverse event occurs between signing the subscription agreement and closing the securities issue
4 | Research conducted by Arthur Mboue
Underwriter Managers (financial institution)
Exercise agreement as first buyer of the securities
If it is a PPM, select qualified investors
Market the securities to the investors, brokers and qualified buyers
prospectus Indicate the underwriter name and address and telephone number of its registered office
Describe the character of its business
List all the types of underwriters involved in this securitization and their duties
Describe the permissible activities and restrictions on the activities
Disclose the total amount of fees to be paid
Provide information about originator’s underwriting criteria for the asset types
Disclose the anticipated schedule for the offering and description of market events
Describe the procedures by which the underwriter will conduct the offering and the procedures for transactions in connection with the offering with an underwriter and participating dealer
Agreement between the sponsor and underwriters
Agreement between the underwriters and dealers
Provide information about originator’s u8nderwriting criteria for the asset types
Disclose the anticipated schedule for the offering and description of material events
Describe the procedures by which the underwriting will conduct the offering and the procedures for transaction in connection with the offering with an underwriting or participating dealers
Agreement among underwriters (AAU)
Underwriters questionnaire and responses
Number and type of securities each manager has agreed to buy
Payment and allocation of the managers’ commission
Delegates power to the arranger/lead manager to act on behalf of the syndicate
Auditors (Accounting firms, mostly big 4, kpmg, PWC, Ernst & Young and Deloitte)
Provide confirmation of financial information in relation to the SPV, and any guarantors, and the receivables themselves
Involved in the latest audit report and financial statements of the vehicle
Provide the name of the auditing firm
Describe its material role and responsibilities in the securitization
Provide the general character of its business and its actions
Auditing agreement Discussion with the
independent auditor report
Report from management
Comfort letters
Addressed to underwriter managers
o 1st at the time of signing of subscription agreement
o 2nd just before completion
5 | Research conducted by Arthur Mboue
For newly incorporated SPV, report on its position immediately following the securitization
Provide the due diligence results (change or not)
Carry-out the financial modeling of the cash flows
Conduct and disclose the results of financial analysis of the collateral
File the required report to be included in the offering and disclosure documents
Disclose the auditor report Disclose if auditor opinion
is unqualified, qualified, adverse or disclaimer
Provide fees, direct and indirect and all the engagement to be paid (fee and expenses table)
It must be dated, signed and state of certification of the lead auditor or firm
SAS 59 requires auditor to evaluate going concern for a reasonable time with explanation paragraph if needed to enhance managers’ knowledge
o Discuss the degree of independence of the auditor and auditor’s consent during this assessment
o State reasons for the offering
o Confirms the reliability of the unaudited financial information
The report musto Be datedo Be manually signedo Indicate the city and
stateo Identify the financial
statement and reports that they did cover
o Must follow PCAOB standards
Depositor (originator itself or any financial institution)
A SPV acts as a depositor and registrant.
Conveys, assigns, receives, purchases and transfers or sells the pool of assets (real, personal and mixed, wherever located and however acquired) or receivables to the issuing SPV
1106 If it is different from the sponsor,
o Provide its ownership structure
o Provide general character of its activities
o Discuss its continuing duties
Purchase and assumption agreement
Purchase price Manner of conveyance Warranty provisions Recourse provisions Payment date Servicing provisions Reversal clause Agreement with respect to
safe deposit Governing law
6 | Research conducted by Arthur Mboue
after issuance Succession provisionSecurities finance lawyers (law firms specialized in financial transactions and securities law)
Ensure a legal efficacy of the structure
Advise on the legal and regulatory aspects of the structure
Advise on the tax aspects of the structure
Draft and negotiate the legal documents and cases
Establish the relevant legal entities
Review the corporate capacity and authority (including delegation of authority) of each party
prospectus Provide name of the law firm and its expertise and experience related to this type of securitization
Describe the form material contractual duties in the securitization
Provide the nature, terms and limitations of its contractual agreement
Retention agreement Legal opinion Comfort letters All contractual
agreements
should include opinions ono each party’s capacity
and authority (including delegation of authority) to enter into a transaction
o whether the transaction documents have been duty executed and represent legal binding and enforceable obligations
o whether the requisite consents and authorities have been obtained and registrations made timely
o whether all legal formalities for the transfer of receivables have been complied with
o whether security interest are effective
o whether choice of law and state of organization provision are effective
o tax treatment for each jurisdiction
Issuer- Special Purpose Vehicle (established by the
This is a pre-existing or newly created SPE (mostly a trust but also a LLC, LLP
1107, 10-K Describe this entity and its form of organization
Describe its permissible
almost all agreements Offering circular: terms and conditions of the
securities
7 | Research conducted by Arthur Mboue
originator and the structurer)
or corporation) for the purpose of the securitization. It is the nucleus of the securitization. It issues securities in PPM or public offering market.
It buys or receives them as a loan
In case of sale, the originator will remove them from its legal control and portfolio
It also issues debt securities to the investors to fund the acquisition of beneficial interest rights
activities and discretionary activities with regard to the administration of the assets
Describe any assets owned or to be owned by the issuing entity
Describe its board of directors or the like, if applicable
Describe the capitalization of issuing entity and the amount of any equity contributing to the entity
Describe sale and transfer of the pool assets to the issuing entity
Describe any arrangement, provisions, expenses and bankruptcy provisions
information about SPV information on the
underlying assets on which the securitization is based
must comply with legal requirements applicable to securities offerings in each jurisdiction where securities are listed and the jurisdiction where the SPV is incorporated or organized
Chosen by the SPV leadershipSecurity Trustee (professional corporate trustee)
He is the guardian of the trust certificates issued to new owners of securities
Holds certificates accounts before distribution date
Makes payment to investors
Holds note and securities documents
Holds and draws on reserve fund
Advances on behalf of Master servicer, if necessary
Maintains certificate register
Oversees Master
1109 Some disclosure related to Trustee may apply to them
trust deed Provisions about the security interest over the
assets making up the security package
Security trustees enforcement powers and rights to deal with the assets comprising the security package
8 | Research conducted by Arthur Mboue
servicer’s performance Represents interest of all
certificate holders Holds and reinvests
reserve fund amounts, payout excess to the originator or investors (it depends on contractual agreement)
Calculates payments of certificate holders
Trustee (appointed corporate trustee)
is appointed to look after the interests of the investors.
can hold assets granted to investors and benefit (including beneficial interests) of covenant and rights in the securitization on behalf of the investors.
has fiduciary duty obligation toward the investors to safeguard the assets pledged as collateral. Leaded by a Master, trustees can confer real and discretionary rights to the investors beneficiaries of the trust.
1109 Disclose the trustee name, its duties, responsibilities and its form of organization
Describe the trustee prior experience
Disclose any actions that would be required by the trustee upon an event of default, potential event of default as well as required percentage of a class or classes of ABS that is needed to require the trustee to take action
Describe any limitations on the trustee’s liability under the transaction agreements regarding the ABS transaction
Disclose any contractual provision or understanding regarding the trustee’s removal, replacement or resignation as well as how the expenses associated with changing from one
security trust deed Trust Certificate
SPV’s covenants to pay which runs parallel with the SPV’s promise to pay in the certificates representing the securities
SPV’s further covenants, representations and warranties for the benefits of the investors
Schedule of terms and conditions set out in the offering circular and the form of certificates representing the securities
9 | Research conducted by Arthur Mboue
trustee to another trustee will be paid
Chosen by the structurer/arranger or trustee of the SPV on behalf of the SPVPaying agent (major bank)
Set out agent powers, duties
Set out documents policies concerning payments to investors
prospectus Provide the name of the paying agent and its form of organization
Describe the paying agent material roles and responsibilities in the securitization
Provide the general character of its contractual agreement
Provide its experience in the securitization and indicate a statement or report included attributed to such experience including prior actions
Provide fees and expenses tables indicate to each item and its purpose
Paying agency agreement
Sets out techniques for payments to investors of principal and interests
Mechanism to exchange or replace damaged or lost certificates
Servicer (also acts something as receiving and paying agent, originator itself or )
Collecting principal, interest and escrow from the borrowers
o Late payment feeso Legal document
prepaid feeo Floato Other due to the
issuer (servicer) Paying taxes and
insurance from escrowed funds
Monitoring delinquencies Workouts/restructurings Executing foreclosures Remitting fees to
1108 Provide servicing experience of the company
o Generalo Relating to assets
of the type being securitized
Discuss material changes in servicing policies during past 3 years
Discuss information about financial condition, if material
Provide material terms of servicing agreement
o Advancingo Procedures of
Servicing agreement Clean up agreement (if it
also plays an originator duties)
Main duty to collect amounts due under the receivables contracts
Procedures and actions to be taken against troubled debtors
Provisions about troubled debtor management (including default notice, collection timeline and notices, repossession and liquidation)
10 | Research conducted by Arthur Mboue
guarantors, trustees and others providing services
In some case including revolving strategy, investing funds temporarily prior to their distribution
Accounting for and remitting principal and interest payments to the holders of beneficial interests in the financial assets
handling delinquent and defaulted assets
o Ability to waive or modify fees
o Ability to document custody
Provide limitations on servicer’s liability
Discuss back-up servicing arrangements
Investment manager (collateral manager and 3rd party investment management firm)
The portfolio of receivables underlying the securitization requires active management
o Determine the assets making up the portfolio both initially and on an ongoing basis
o Negotiate and enter agreements for the acquisition, management and sale of receivables
o Deal with valuations of the portfolio required by the SPV
o Comply with reporting requirements relating to the asset portfolio
Paid on a percentage basis
Prospectus, FWP
Provide the name of the investment manager and its form of organization
Describe the investment manager material roles and responsibilities in the securitization
Disclose there any restriction on the manager duties
Disclose general character of its business activities
Provide the nature and terms of its contractual agreement
Provide total amounts fees, direct and indirect to be paid
Investment management agreement
Vendor trading partner agreement
Strict eligibility guidelines in respect of the assets that may form part of the portfolio which the investment manager must comply with
events triggered the replacement of the manager
compliance with strict investment management reporting rules
11 | Research conducted by Arthur Mboue
plus other discretional incentive
Can be required to hold a junior tranche in order to share risk and raise confidence and value of the securitization
Collateral administrator (independent 3rd party, a bank)
agent hired to administer the portfolio
Maintains a database detailing the content of the portfolio and uses to
o Run performance tests
o Provide reports on the underlying assets
o Obtain valuations of the underlying assets
o Calculate payment and receipt requirements
o Open and administer bank accounts
o Direct payments to be made according to the transaction documents
Prospectus, Form S-3, FWP
Disclose the name of the collateral administrator and its form
Describe the collateral administrator material contractual agreement
Disclose terms of any administration agreement regarding issuing entity
Provide its experience in the securitization
Collateral Administration agreement
Power and duties of the collateral administrator and the collateral manager provisions
Their compensations clauses Terms of their duties
provisions Termination, resignation and
appointment of successor provision
Representation and warranties provision
Governing law clause (‘this agreement shall be constructed in accordance with and this agreement and any matters arising out of or relating in any way whatsoever to this agreement, in contract, tort or otherwise, shall be governed by the laws of the State of…’)
Bankruptcy non petition, limited recourse clause
Assignment of issuer’s rights provisions
Jurisdiction clause signatures
Swap counterparty (Wall Street firm
It can serve as either a broker or a dealer
1115 Disclose the name of the of the swap counterparty or
Swap agreement documents
Provision about detailed risks and events leading to a swap
12 | Research conducted by Arthur Mboue
specialized in derivatives)
As a broker, this bank matches counterparties but does not assume any of the risks of the swap transactions
As a dealer, the swap bank accepts either side of the currency and then later reduces their risks or matches it with counterparty
It can line up behind on the sequential payment schedules agreement with the investors as a residual class owner
A swap is a derivative when two counterparties agree to a contractual agreement to exchange cash flows at periodic intervals
calculation agent Disclose the name of the
derivative counterparty Disclose whether the
significance percentage is less than 10%, at least 10% but less than 20% or 20% or more
Describe a material provisions regarding substitution of the derivative counterparty
Disclose its determination of any Amount of derivatives
Disclose, insert and file the swap agreement as exhibit
Disclose total fees, direct or indirect to be paid
File the agreement relating to the derivative instrument as an exhibit
o Generalo Early terminationo Taxationo Rating
downgrade or withdrawal
o Credit support agreement
o Interest deferralo Transfers
Provision about credit defaults, swap arrangement, swap counterparty and premium payment
Provisions about risk sharing arrangements include price adjustment clause, neutral zone, outside neutral and zero cost insurance clauses.
Monoline Insurer (Monoline insurance company and large insurance specialized as provider of financial obligation, credit enhancers)
An insurance policy with a monoline and irrevocable agreement to pay interest and principal at the originally agreed schedule payments
Monoline insurers aim to minimize the risk by
o Accepting only selected investment grade program
o Using a deterring tough analysis and due diligence process
1114 Disclose the name of such enhancement provider and the nature of business of the monoline insurer
Disclose any actions that would be required by the monoline insurer upon an event of default and potential event of default
Disclose any limitation of this contractual agreement
Disclose any contractual provision or understanding regarding its termination, resignation or replacement
Describe the method used
Insurance policy agreement
Common policy declaration Policy number, effective
date, expiration date Name of the insurance
company and broker Premium for each coverageCommon policy condition Cancellation terms Changes examination of books and
records inspections and survey transfer rightscoverage parts
13 | Research conducted by Arthur Mboue
o Maintain a diversified portfolio
In evaluating the overall credit worthiness of the monoline, an analysis must evaluate the adverse change in cash flow waterfall and the sufficiency of the monoline cash reserves and capital, rating activity, whether the monoline is in default, in that red zone or default appears imminent and the potential for intervention by an insurance or other entities
for calculation, covering a least 5 fiscal years
o Aggregate principal amount of all guarantee
o Reserve ratioo Recovery rateo Loss rateo Claim rate
Clearing houses (Depositary Trust & clearing corporation or Fedwire)
Provide clearing and settlement services for the securities
prospectus Disclose the name and the nature of the business of the clearinghouse
Identify each clearing house used and any minimum amount that must be assigned as a condition of the transaction
Discuss any arrangement to keep this amount outstanding
Disclose any rights related to any excess cash
Disclose any requirement in the transaction agreements to maintain a minimum amount of excess cash flow or spread
Insurance clearinghouse service (ICS) agreement
Vendor trading partner agreement
Fedwire testing instructiono Institution nameo ABA numbero Test contact nameo Type of testo Test start date
Fedwire Fund and Fedwire securities service form (3rd party service arrangement, operating circular)
14 | Research conducted by Arthur Mboue
from or retained interest in, the transaction and any actions that would be required or changes to the transaction structure that would occur if such requirements were not met
Rating agencies (Standard and Poors, Moody’s investor services, Fitch ratings service or Duff& Phelps Credit rating Co)
Rates the securities to opinion whether the SPV has a strong or weak capacity to pay interest and principal when due
The rating is provided after detailed statistical analysis on the probability of default and the effects of such default on the ability of the SPV to comply with its payment obligations in respect of the securities
1120 Disclose whether the issuance or sale of any class of offered securities is conditioned on the assignment of a credit rating agencies would be useful information to investors
Identify each rating agency that is used and the minimum rating that must be assigned as a condition of the transaction
Discuss any arrangement to have that rating monitored while the ABS are outstanding
Include a statement explaining that the rating is not a recommendation to buy, sell or hold securities
Disclose if the arranger and sponsor has obtained a preliminary rating to that class of ABS
Partnership or trust Deed or certificate of incorporation
Copy of the Board resolution authorizing the rating
Copy of the Bylaws Copy of the project to be
rated Copy of all financial
statements for the last 3 fiscal years
Additional documents under request from the rating firm
CIK number Usually, if the issuer does not
request the rating, Moody and S & P will simply do the rating on the basis of the publicly available information and disclose it to the public
Fitch and Duff Phelps have only done solicited rating of any type of securities
Feeso Onetime fee to
request rating anytime
o S&P ($25,000 to $125,000)
o Moody’s (~$ 130,000)
Listing agent (law form or company specialized in listing in exchange)
Research and list the company or its shares on the national securities exchange
Set out the details of the
prospectus Provide the name and the nature of the business of the listing agent
Disclose to what extent the listing agent rely on the
Draft Form 8-A Listing application for debenture
Statement of understanding
In lieu of Form 8-A, other forms can be used including Form 10
o 8 copies, one is manually signed
15 | Research conducted by Arthur Mboue
listing strategies company’s audited financial reports
Disclose if the listing agent did request related shareholders data
Disclose of the listing agent did find the securitizer’s resources sufficient to meet its obligations
Disclose whether the listing agent did find any conflict of interest arising from the securitizing transactions
Disclose whether the listing agent did verify any accuracy of the transactions
Disclose any limitations arising from the listing agent’s contractual duties
Policies and procedures, instruction
Listing application for American Depositary Receipt
Rule 315 letter
Stock exchange (NYSE, NASDAQ, Japan Exchange group, Euronext, London Stock exchange group, Hong Kong stock Exchange, TMX (Canada), Deutshe Bourse)
Serves as a global platform to trade securities with electronic , anonymous and hybrid trades
Maintain a body of rules to regulate its members
prospectus Provide the name and the nature of the national securities exchange
Disclose if you will not list the securities
Disclose where the trading will be developed
Copy of Charter Copy of By laws or
Partnership, operating agreement or Trust deed
Description of registrant’s securities to be registered
Certified check payment of the registration fee
Copies of the latest definition of proxy, annual report to the shareholders, annual report filed to SEC and quarter reports filed to SEC
Copy of Board resolution
After the program: the company must file 2 copies of final listing application
16 | Research conducted by Arthur Mboue
authorizing the securitization (certificate of secretary as to adoption of resolutions)
Copy of shareholders resolution authorizing the issuance of securities for listing
Copy of specimen certificate (if needed)
Copy of good standing certificate from jurisdiction of the entity
Letter to NYSE from the company General counsel
Copy of this letter for filing stamp (along addressed stamped envelope)
Liquidity facility provider
Sets out the details of the liquidity support facility
This is a lender under short term basis in relation to certain tranches of the issued securities
prospectus Disclose the name of the liquidity facility provider, its business and its material roles in the securitization
Provide the nature and terms of its contractual agreement
Disclose any limitations on the liquidity facility provider under the provider agreement regarding the ABS transaction
Provide a summary financial information of the liquidity provider
Disclose if there is any
Liquidity agreement Detailed of the standard loan agreement terms and conditions including the amount of the loan facility and the events leading to their uses
For tax reason, the jurisdiction does matter
17 | Research conducted by Arthur Mboue
custodian intermediate transferor and liquidity providers in the secondary markets
Disclose any material terms of any agreement with that party regarding the ABS transaction
Credit enhancement provider
Use as a financial technique to improve the creditworthiness of the issued securities
Guarantees payment of all contractual cash flow waterfall with investors for intervention when the default appears imminent
prospectus Describe external and internal enhancement
For external enhancement providers
o Describe the provider and its business
o Summary financial information for 10% provider
o Audited financial statement for 20% providers
Credit enhancement agreement
Subordination clause Reserve accounts clause Demand notes clause Letters of credit clause Surety bond clause Guaranteed investment
contract clause Swaps or other interest rate
protection agreement Repurchase obligations
18 | Research conducted by Arthur Mboue