Reed Smith Client Alerts. The precise application of the Transparency Requirements depends on whether the securitisation is public or private. M. Tamara Box. Does the entity have a broader business enterprise? Such payments will be treated as dependent if there is a direct correlation between payments made by obligors in relation to the underlying exposure or pool of exposures and payments made to ‘investors’ (including lenders and buy side entities) under the transaction documents. Iain Balkwill Based on our experience of advising a range of participants on structuring their transactions, this article considers how market participants have responded to those challenges. ESMA has published guidance on how to fill in the disclosure templates in its Q& A Document on Securitisation Topics. In the absence of regulatory guidance, the market has tried to apply a common sense approach to the application of the Regulation to legacy transactions that are subject to material changes. In practice, a careful legal analysis of the specific terms of the transaction documentation (including the waterfall provisions and/or the presence of a proceeds deed (where applicable)) is required to determine whether the contractual provisions have the effect of subordination. In loan-on-loan transactions, arrangement fees, which are not dependent on the performance of the underlying loans, have been treated as alternate income. The Regulation requires the originator, the original lender or the sponsor to retain 5 per cent of the material net economic interest in the securitisation transaction (i.e., to have economic exposure to the performance of the underlying exposure or pool of exposures) for the life of the securitisation transaction (the so-called ‘risk retention amount’ or RRA). It is important to note that investing in an STS securitisation transactions may afford certain investors more favourable regulatory capital treatment. Emily E. Cartwright Market participants have been engaging with local regulators for guidance on this topic. the originator, sponsor and SSPE in an STS securitisation transaction must be established in the EU;, only true sales are eligible for inclusion (and so synthetic securitisations and commercial mortgage backed securities transactions are excluded);, the transaction must be backed by pools of exposures that are homogeneous in asset type, and must not include transferable securities (other than certain types of corporate bonds);, clear specification requirements must be met for the relevant transaction documentation and obligation to provide a precise liability cash flow model to potential investors; and. The Regulation imposes certain due diligence and ongoing monitoring obligations on investors in securitisation transactions that qualify as ‘Institutional Investors’. Furthermore, it has often been difficult to understand how to complete the relevant data fields for a given transaction or to determine whether it is even relevant. Transactions structured as tranches of debt securities with differing levels of subordination (e.g., senior and junior notes) or as senior loans and junior loans (where the repayment of the junior loan is subordinated to payments due to the senior lenders) are normally treated as meeting the ‘subordination test’. 11 February 2020 Reed Smith Client Alerts. For public securitisations, the information must be disclosed via an ESMA registered securitisation repository (or if no ESMA registered securitisation repository exists, disclosure is permitted to be made via a website if the website meets specified requirements as to data control and security). As from 23 September 2020 the disclosure templates annexed to the technical standards must be used. For additional information about the securitisation Regulation, please visit the dedicated page on ESMA’s website. We have consulted on and issued rules designed to implement the EU Securitisation Regulation, including certain changes necessary to take account of the UK’s exit from the EU: 1. The originator must apply to the underlying exposure or pool of exposures that form part of the securitisation “the same sound and well defined criteria for credit granting which they apply to non-securitised exposures”, including “the same clearly established processes for approving and where relevant amending, renewing and refinancing credits” (the Credit Granting Requirements).

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