| 18.73 | In simple, transparent and comparable securitizations, the assets underlying the securitization should be credit claims or receivables that are homogeneous. In assessing homogeneity, consideration should be given to asset type, jurisdiction, legal system and currency. As more exotic asset classes require more complex and deeper analysis, credit claims or receivables should have contractually identified periodic payment streams relating to rental,75 principal, interest, or principal and interest payments. Any referenced interest payments or discount rates should be based on commonly encountered market interest rates,76 but should not reference complex or complicated formulae or exotic derivatives.77
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| | (1) | For capital purposes, the “homogeneity” criterion should be assessed taking into account the following principles:
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| | | (a) | The nature of assets should be such that investors would not need to analyze and assess materially different legal and/or credit risk factors and risk profiles when carrying out risk analysis and due diligence checks.
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| | | (b) | Homogeneity should be assessed on the basis of common risk drivers, including similar risk factors and risk profiles.
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| | | (c) | Credit claims or receivables included in the securitization should have standard obligations, in terms of rights to payments and/or income from assets and that result in a periodic and well-defined stream of payments to investors. Credit card facilities should be deemed to resultin a periodic and well-defined stream of payments to investors for the purposes of this criterion.
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| | | (d) | Repayment of noteholders should mainly rely on the principal and interest proceeds from the securitized assets. Partial reliance on refinancing or re-sale of the asset securing the exposure may occur provided that re-financing is sufficiently distributed within the pool and the residual values on which the transaction relies are sufficiently low and that the reliance on refinancing is thus not substantial.
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| | (2) | Examples of “commonly encountered market interest rates” would include:
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| | | (a) | Interbank rates and rates set by monetary policy authorities, such as the London Interbank Offered Rate (Libor), the Euro Interbank Offered Rate (Euribor) and the fed funds rate; and
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| | | (b) | Sectoral rates reflective of a lender’s cost of funds, such as internal interest rates that directly reflect the market costs of a bank’s funding or that of a subset of institutions.
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| | (3) | Interest rate caps and/or floors would not automatically be considered exotic derivatives.
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75 Payments on operating and financing leases are typically considered to be rental payments rather than payments of principal and interest.
76 Commonly encountered market interest rates may include rates reflective of a lender’s cost of funds, to the extent that sufficient data are provided to investors to allow them to assess their relation to other market rates.
77 The Global Association of Risk Professionals defines an exotic instrument as a financial asset or instrument with features making it more complex than simpler, plain vanilla, products.
