Banks Act, 1990 (Act No. 94 of 1990)NoticesDesignation of an Activity not Falling within the meaning of "The Business of a Bank"Exemption Notice relating to Securitisation Schemes7. Liquidity facilities |
| 1) | General |
| a) | Normally, a liquidity facility enables a special-purpose institution to make timely payments of principal and interest amounts to investors, notwithstanding market disruptions or timing differences in the receipt of principal and interest amounts from the pool of assets that was securitised or obtained as collateral, and payment in respect of the senior commercial paper. |
| 2) | Conditions relating to liquidity facilities |
| a) | A liquidity facility- |
| i) | shall not be associated with the credit risk of the underlying or reference asset |
| ii) | shall have a specified maturity date; |
| iii) | shall be duly documented in a manner that clearly distinguishes the facility from any other facility provided by a bank or another institution within a banking group of which such a bank is a member in respect of the securitisation scheme; |
| iv) | shall be transacted on market related terms and conditions, including matters relating to price and fee; |
| v) | shall be subject to the bank's normal credit approval and review processes; |
| vi) | may be reduced or terminated at the instance of the bank or such other institution within the banking group concerned should a specified event relating to a deterioration of asset quality occur; |
| vii) | shall contain a reasonable asset quality test to ensure that- |
| A) | the utilisation of such a facility would not cover deteriorated or defaulted assets; |
| B) | when the assets covered by the liquidity facility consist of assets that are externally rated, the facility shall be utilised only to fund assets that at the time of funding are rated investment grade, or better; |
| viii) | shall provide for the termination of the facility when- |
| A) | there is no longer a sufficient level of performing assets of good quality to cover the amount of any new or existing utilisation in terms of the liquidity facility; or |
| B) | the credit-en hancement facilities have been exhausted, that is, there is no longer a sufficient level of credit enhancement to cover the amount of any new or existing utilisation in terms of the liquidity facility; |
| b) | There shall be no recourse to a bank or another institution within a banking group of which such a bank is a member, which bank or institution provided a liquidity facility, beyond a fixed contractual obligation specified in the facility. |
| c) | Subject to reasonable qualifying conditions, the parties involved in a securitisation scheme or a person acting on behalf of these parties shall have the unequivocal right to select an alternative party to provide a liquidity facility. |
| d) | The documentation relating to the facility shall clearly identify and limit the conditions for utilisation and, in particular, shall state that the facility may not be utilised as a permanent revolving facility in order to provide credit enhancement or to cover losses sustained in respect of the securitisation scheme. |
| e) | The utilisation of the liquidity facility shall be effected by the special-purpose institution and not directly by the investors. |
| f) | Subject to the provisions of item (a)(i) above, the debts resulting from the utilisation of the liquidity facility shall not be subordinated to the interests of investors in the securitisation scheme provided that the debts resulting from the utilisation of the liquidity facility may be subordinated to the debts resulting from the utilisation of other liquidity facilities whenever multiple liquidity facilities are provided to a securitisation scheme. |
| g) | Payment of any fee or other amounts due in respect of the liquidity facility shall not be further subordinated or subjected to deferral or waiver beyond what is explicitly provided for in the order of priority and payment entitlement provisions. |
| h) | The salient features of the liquidity facility shall be disclosed in the disclosure document issued in respect of the securitisation scheme. |
| i) | The disclosure document issued in respect of the traditional or synthetic securitisation scheme shall contain a clear and unequivocal statement that- |
| i) | the obligations of the bank or another institution within the banking group concerned in respect of a liquidity facility do not significantly extend beyond the salient features disclosed in accordance with item (h) above; |
| ii) | the bank or another institution within the banking group concerned will not support the securitisation scheme beyond the obligations stipulated in subitem (i) above. |