Key Definitions
- Assets: Loans or receivables on originator's books prior to securitization, including mortgage, consumption, trade, lease, credit card receivables.
- Asset-Backed Securities (ABS): Certificates issued by the Special Purpose Trust (SPT) representing undivided interest in Asset Pool.
- Asset Pool: Identified, self-amortizing assets conveyed to the SPT.
- Clean-up Call: Option for Seller to repurchase remaining assets when balance falls to 10% or less.
- Credit Enhancement: Legally enforceable schemes enhancing ABS marketability and investor payment probability.
- Guarantor: Entity guaranteeing repayment upon borrower default.
- Investible Funds: Collection proceeds not yet distributed to investors.
- Issuer: The Special Purpose Trust issuing ABS.
- Originator: Entity assembling loans or receivables into a pool.
- Residual Certificates: Claims on remaining Asset Pool value after all ABS holders are paid.
- Seller: Entity conveying assets to SPT.
- Servicer: Entity collecting payments and remitting to Issuer.
- Special Purpose Trust (SPT): Trust created solely to issue/administer ABS.
- Trustee: Entity administering the SPT.
- Underwriter: Entity distributing and selling ABS.
Board Approval and Management Oversight
- Securitization program requires board approval.
- Program must integrate into corporate strategic plan.
- Board ensures securitization aligns with approved program.
Application Requirements and Documentation
- Must submit:
- Trust Indenture detailing asset conveyance and ABS features.
- Prospectus with ABS class details, asset descriptions, cash flow assumptions, credit enhancement.
- Specimen application forms and certificates showing terms and required disclosures.
- Trust indenture includes servicing and underwriting agreements as annexes.
Minimum Features of ABS
- Pre-numbered, printed on security paper.
- Signed and authenticated by Trustee.
- Transferable by endorsement, with transfers recorded in Trustee’s books.
- Minimum denomination: ₱10,000.
Mandatory Disclosures
- ABS do not represent deposits or liabilities of originator, servicer, or trustee.
- Not insured by Philippine Deposit Insurance Corporation (PDIC).
- Investment involves risk; trustee does not guarantee capital value or asset collectibility.
- Investors must acknowledge understanding of disclosures.
True Sale and Asset Conveyance
- Conveyance must be a true sale with assets removed from Seller’s books, except residual certificates.
- Seller has no obligation to repurchase or substitute assets except in breach or revolving structures.
- No obligation to maintain collateral coverage ratio except in revolving structures.
- True sale requires assets isolated from Seller, trustee’s rights to pledge or exchange, and no Seller control.
- Underwriting and conveyance expenses paid by Originator/Seller until assets conveyed.
Representations and Warranties
- Must be clear, explicit, reflecting verifiable facts at sale.
- Do not cover future creditworthiness or SPT performance.
- Breach claims require good faith negotiation, proof burden on claimant, damages limited to actual loss, written notice.
- BSP to be notified if damages are paid for breaches.
Due Diligence and Third Party Review
- Independent due diligence review agreed by Seller and issuer before asset sale.
Roles of Originator, Seller, Trustee, and Servicer
- Seller may also be Originator and Servicer.
- Seller delivers all original asset documents to Trustee.
- Trustee must be a licensed bank trust department.
- Trustee manages Asset Pool, protects assets, reviews performance quarterly, reports to investors.
- Trustee initiates legal actions for collection; may delegate to Servicer.
- Trustee invests Investible Funds only in government or BSP-approved high-grade securities.
- Trustee can replace Servicer for non-performance.
- Servicer collects payments, remits to Trustee within a month, reports borrower defaults/adverse developments within 30 days.
- Servicer needs Trustee’s written approval to waive penalties.
Underwriter Regulations
- Expanded commercial banks and investment houses to maintain written ABS underwriting policies.
- Must follow underwriting agreement terms.
- Underwriters prohibited from dealing in ABS administered by their own trust departments or affiliates.
- May not extend credit to purchase ABS underwritten by themselves or affiliates.
Guarantor Requirements
- Must be an entity regularly issuing guarantees.
- Possess adequate financial capacity; submit semi-annual financials to Trustee.
- Originator/Seller prohibited from issuing counter-guarantees.
Credit Enhancement Methods
- Includes standby letters of credit, surety bonds, guarantees from unrelated entities, overcollateralization, spread accounts, subordinated securities, and other BSP-approved methods.
- Subordinated securities must be sold to third parties not related to Originator/Seller or Trustee, or treated as deposits with capital charges.
Clean-up Call Option
- Permitted when principal balance falls to 10% or less of original balance.
- Includes foreclosed/other assets valued at current market price.
- Exercise does not violate non-recourse or true sale provisions.
Prohibited Activities
- Seller may not designate its own or affiliate trust departments as Trustee.
- Directors/officers/employees of Originator/Seller/Servicer prohibited from serving on Trustee’s boards during securitization.
- No credit facility commitments to Issuer/Trustee in trust indenture.
- ABS not eligible as collateral for loans from originating bank/NBQB.
- Trust departments prohibited from purchasing ABS they administer for their own fiduciary accounts.
- Trustee may not designate subsidiaries or affiliates as Servicer.
Amendment and Reporting
- Trust indenture amendments require BSP approval.
- Trustee must submit quarterly securitization reports to BSP within 15 banking days.
Sanctions
- Violations subject to penalties under Section 37 of Republic Act No. 7653.
- Circular effective immediately upon issuance.