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Retention of Risk by Securitisers in Australian Securitisations ASF Evening Series February 2010 Chris Dalton Panel Alex Breier – Portfolio Manager, AMP Capital Investor Kevin Lee – Division Director, Macquarie Bank Mary Ploughman – Director, Resimac IOSCO Recommendation 1

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retention of risk by securitisers in australian securitisations

Retention of Risk by Securitisers in Australian Securitisations

ASF Evening Series February 2010 Chris Dalton

panel
Panel
  • Alex Breier – Portfolio Manager, AMP Capital Investor
  • Kevin Lee – Division Director, Macquarie Bank
  • Mary Ploughman – Director, Resimac
iosco recommendation 1
IOSCO Recommendation 1

“Consider requiring originators and/or sponsors to retain a long term economic exposure to the securitisation in order to appropriately align interests in the securitisation value chain.”

us retention proposals
US Retention Proposals
  • June Obama Administration Proposed Securitization Reform Legislation (“Administration Draft”)
  • July House of Reps draft Financial Stability Improvement Act (“House Draft”)
  • November Senate draft Financial Regulatory Reform (“Dodd Draft”)
administration draft
Administration Draft
  • a securitiser retain “at least 5%” of the credit risk of any securitized exposure
  • prohibit hedging or transferring the retained risk
  • regulators to specify how retention should be satisfied
  • securitiser is an issuer or underwriter of ABS (as defined under SEC’s Regulation AB)
house draft
House Draft
  • Similar to the Administration draft proposals
  • Retention of an economic interest of at least 5%
  • Applies to any transfer of a loan by a creditor in the secondary market whether or not in connection with a securitisation
dodd draft
Dodd Draft
  • require a securitizer to retain an economic interest in a material portion of the credit risk of securitized assets
  • minimum level of retention is not less than 10%
  • prohibition on hedging or transferring retained risk
  • Securitiser is an issuer of ABS (as defined under the Securities Exchange Act 1934)
asf retention proposal
ASF Retention Proposal
  • Recognition and quantification of economic exposure
  • Disclosure of quantum of risk retained by the securitiser
  • Calibration to asset class risk
  • Non complying transactions permitted under “if not, why not disclosure provisions”
  • Recognition of equivalency of Australian framework by other jurisdictions
1 securitiser s retained exposure
1. Securitiser’s retained exposure
  • Compliance with ASF Standards
  • Value of up Securitiser’s up front investment
      • value of part commissions paid to brokers
      • payment of LMI premiums
      • value of subordinated reserves funded by the securitiser
      • Cost of derivative contract to match cash flows
  • NPV of Securitiser’s future income
      • loan and special servicing fees
      • value of any deferred income
      • expected value of RIU (not monetarised)
2 quantify and disclosure
2. Quantify and Disclosure
  • Quantify based on industry guidelines
  • Disclosed and expressed as a percent of notes sold to investors
  • Evaluation of adequacy by investors
3 calibration to asset class risk
3. Calibration to Asset Class Risk
  • Originator history
    • for similar receivables previously originated by the securitiser,

1.5 times historical losses*

  • Asset class history
    • where originator history is not available, 2.0 times historical losses*

* As measured on a rolling three year basis

4 non complying transaction
4. Non Complying Transaction
  • The ASF proposed framework would permit transactions that do not meet the ASF standards and retention of risk minimums where this was clearly disclosed and explained to institutional investors.
5 mutual recognition
5. Mutual recognition
  • ASF’s proposal is predicated on the expectation that international regulators will recognise the equivalency of the Australian regulatory framework in satisfying the IOSCO recommendation 1.