| 18.118 | The sponsor should be able to assess thoroughly the credit risk of the asset pool prior to its decision to provide full support to any given transaction or to the conduit. The sponsor should ensure that credit claims or receivables transferred to or through a transaction financed by the conduit:
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| | (1) | Satisfy clearly defined eligibility criteria; and
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| | (2) | Are not actively selected after the closing date, actively managed99 or otherwise cherry-picked on a discretionary basis.
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| 18.119 | The sponsor should ensure that the transactions in the conduit effect true sale such that the underlying credit claims or receivables:
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| | (1) | Are enforceable against the obligor;
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| | (2) | Are beyond the reach of the seller, its creditors or liquidators and are not subject to material re-characterization or clawback risks;
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| | (3) | Are not effected through credit default swaps, derivatives or guarantees, but by a transfer100 of the credit claims or the receivables to the transaction; and
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| | (4) | Demonstrate effective recourse to the ultimate obligation for the underlying credit claims or receivables and are not a re-securitization position.
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| 18.120 | The sponsor should ensure that in applicable jurisdictions, for conduits employing transfers of credit claims or receivables by other means, sellers can demonstrate to it the existence of material obstacles preventing true sale at issuance (e.g. the immediate realization of transfer tax or the requirement to notify all obligors of the transfer) and should clearly demonstrate the method of recourse to ultimate obligors (e.g. equitable assignment, perfected contingent transfer). In such jurisdictions, any conditions where the transfer of the credit claims or receivables is delayed or contingent upon specific events and any factors affecting timely perfection of claims by the conduit should be clearly disclosed.
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| 18.121 | The sponsor should ensure that it receives from the individual sellers (either in their capacity as original lender or servicer) representations and warranties that the credit claims or receivables being transferred to or through the transaction are not subject to any condition or encumbrance that can be foreseen to adversely affect enforceability in respect of collections due.
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99 Provided they are not actively selected or otherwise cherry picked on a discretionary basis, the addition of credit claims or receivables during the replenishment periods or their substitution or repurchasing due to the breach of representations and warranties do not represent active portfolio management.
100 This requirement should not affect jurisdictions whose legal frameworks provide for a true sale with the same effects as described above, but by means other than a transfer of the credit claims or receivables.
