Industry Research: Structured Finance

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The Importance of Portfolio Covenants and Early Amortisation Triggers in Revolving Securitisation Transactions
  • Industry Research: Structured Finance
  • Year : Jul 2021
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Summary

Securitisations are either structured as amortising or revolving transactions whereby the principal collections from the asset portfolio are used to repay the debt issued by the Special Purpose Vehicle (“SPV” or “the Issuer”) or, in the latter case, are used to purchase additional assets. Revolving structures are generally used to extend the duration of the debt issued by the SPV, especially when the securitised receivables have a short lifespan. Because the cash flows collected from the asset portfolio are reinvested in new assets, the debt is only redeemed at a later stage.

Additional Information

Both portfolio covenants and early amortisation triggers are important aspects of a securitisation and the rating process. Portfolio covenants ensure that an Issuer SPV will only acquire assets that maintain its portfolio within certain aggregate parameters. Early amortisation triggers ensure that a transaction switches to its amortising phase as soon as its portfolio’s composition and/or performance deteriorates to a predetermined degree.

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