Lending to SPVsLending to SPVs

Lending to SPVs

23. An ADI may provide a lending facility to a SPV for the purchase of assets to gear up investors’ interests. An ADI should treat such a facility as a commitment to provide finance (and as a loan once drawn), provided:

(a) the conditions set out in sub-paragraphs 3(a)-(e) of AGN 120.2 are met;

(b) any draw-down of the lending facility incorporates a specified maturity date[21];

(c) the lending facility is provided solely for the purpose of acquiring additional assets or for the refinancing of an existing loan (not securities issued by the scheme) used to fund the acquisition of assets by the SPV; and

(d) repayments of drawings under the facility are not subordinated to the interests of investors.

Where these requirements are not satisfied, the lending facility should be treated as a credit enhancement and assessed as a first or a second loss facility according to its characteristics.

24. An ADI may offer temporary funding to a SPV during a scheme’s establishment phase to facilitate the acquisition of assets pending the issue of securities[22], provided:

(a) the ADI is only committed to fund the initial acquisition of assets;

(b) assets to be acquired are not impaired at the time the ADI is required to advance funding;

(c) the ADI is fully secured against any funding provided;

(d) drawings under the facility will be repaid within 6 months; and

(e) the ADI has in place adequate systems and controls to ensure that it does not accumulate disproportionate levels of aggregate exposure (relative to the ADI’s asset portfolio and capital) to assets held by SPVs[23].

A lending facility that does not meet these requirements should be treated as a credit enhancement and assessed as a first or a second loss facility according to its characteristics.

Lending to Investors

25. An ADI may advance funds directly to investors for the purpose of investing in securities issued by a SPV. Such a facility should be treated as a commitment to provide finance (and as a loan once drawn) for capital adequacy purposes, where:

(a) the conditions set out in sub-paragraphs 3(a)-(c) of AGN 120.2 are satisfied;

(b) any draw-down of the facility incorporates a specified maturity date;

(c) there is no implication that the facility acts other than as a stand-alone lending facility to the customer of the ADI; and

(d) the ADI has full recourse to the investor beyond any collateral for repayment of advances.