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Non-performing credit claims and receivables are likely to require more complex and heightened analysis. In order to ensure that only performing credit claims and receivables are assigned to a securitization, credit claims or receivables being transferred to the securitization may not, at the time of inclusion in the pool, include obligations that are in default or delinquent or obligations for which the transferor79 or parties to the securitization80 are aware of evidence indicating a material increase in expected losses or of enforcement actions.
(1)
To prevent credit claims or receivables arising from credit-impaired borrowers from being transferred to the securitization, the originator or sponsor should verify that the credit claims or receivables meet the following conditions:
(a)
The obligor has not been the subject of an insolvency or debt restructuring process due to financial difficulties within three years priorto the date of origination;81 and
(b)
The obligor is not recorded on a public credit registry of persons with an adverse credit history; and,
(c)
The obligor does not have a credit assessment by an ECAI or a credit score indicating a significant risk of default; and
(d)
The credit claim or receivable is not subject to a dispute between the obligor and the original lender.
(2)
The assessment of these conditions should be carried out by the originator or sponsor no earlier than 45 days prior to the closing date. Additionally, at the time of this assessment, there should to the best knowledge of the originator or sponsor be no evidence indicating likely deterioration in the performance status of the credit claim or receivable.
(3)
Additionally, at the time of their inclusion in the pool, at least one payment should have been made on the underlying exposures, except in the case of revolving asset trust structures such as those for credit card receivables, trade receivables, and other exposures payable in a single instalment, at maturity.
79 Eg the originator or sponsor. 80 Eg the servicer or a party with a fiduciary responsibility 81 This condition would not apply to borrowers that previously had credit incidents but were subsequently removed from credit registries as a result of the borrower cleaning their records. This is the case in jurisdictions in which borrowers have the “right to be forgotten”.
