Revolving facilitiesRevolving facilities

Revolving facilities

11. An ADI may sell the receivables arising from a revolving finance facility to a SPV and retain an interest in those receivables. The sale of these revolving credit receivables can be considered a clean sale where:

(a) the rights and obligations of the ADI and investors are clearly specified at the commencement of the securitisation scheme;

(b) the distribution of the principal and other cashflows during the run-down period is clearly stated at the commencement of the program;

(c) the distribution of:

(i) interest flows during the on-going or revolving period;

(ii) all expenses; and

(iii) the principal and other cashflows during the run-down or repayment/amortising period of the securitisation scheme,

accord with the interests of the ADI and investors in the receivables;[11]

(d) the ADI shares in any losses or liquidity shortfalls associated with receivables on a pro rata basis, not exceeding the proportion of its interest in receivables held by the SPV;

(e) any discount rate on the sale to a SPV of additional receivables provided by an ADI during the revolving period, is fixed at the commencement of the securitisation scheme;[12]

(f) the ADI does not provide additional receivables, or cashflows from other receivables, to maintain a given cashflow or a coverage ratio once the amortisation period has commenced;

(g) the selection of receivables does not systematically favour investors, and the receivables transferred are chosen from a random selection of eligible revolving facilities;[13]

(h) the scheme provides for the amortising period to commence on a stipulated date (subject to the occurrence of any specified early amortisation date);[14]

(i) following the commencement of the amortising period, the ADI retains the right to cancel (without notice) any undrawn limits on revolving facilities whose receivables have been sold to the SPV. This is not required where the ADI holds capital against the undrawn facilities through the “revolving” and “amortising” periods in accordance with normal capital adequacy requirements;

(j) the ADI is able to demonstrate that the payment of principal on outstanding receivables held by the SPV will be sufficient to ensure repayment of the ADI and investors over the amortising period;

(k) any provision for early amortisation of assets held by a SPV cannot be precipitated by regulatory action affecting the seller of the assets;

(l) the effect of early or rapid amortisation events (if any) on the ADI’s capital and liquidity management has been considered by the ADI; and

(m) the ADI is under no obligation to:

(i) repurchase outstanding balances in a default situation;

(ii) alter the amortisation period except upon the occurrence of any specified early amortisation events; and

(iii) alter the principal allocation percentage which stipulates the share that investors would bear in any losses incurred by the SPV.

12. Where a securitisation scheme includes provision for early or rapid amortisation events, the potential effect of these events should be considered by an ADI in its capital and liquidity management plans. APRA may wish to review with the ADI such provisions and their potential impact in determining the treatment to be accorded the sale of securitised receivables by the ADI for capital adequacy and liquidity reporting purposes.