Just before Christmas on 20 December 2021, the European Banking Authority (EBA) published its consultation on the determination of performance-based triggers for synthetic STS securitisations.
The essence of this very technical consultation is that investors should be specially protected when investing in synthetic securitisations if the STS quality standard is to be achieved. In securitisations, it is common practice for transactions to amortise pro rata after the end of a revolving phase, i.e. all bond classes are repaid equally, at least as long as the performance of the securitised loan portfolio is within expectations. For STS securitisations, however, senior bondholders are required to be repaid first, i.e. repaid sequentially. Pro-rata redemption should only be permissible if key figures based on portfolio performance are measured and reported on an ongoing basis and redemption is switched to sequential if threshold values (triggers) are exceeded.
Consequently, the EBA is now making proposals as to what requirements these triggers must meet and is giving market participants until 28 February 2022 to comment.
If you have any questions or comments on this consultation, please do not hesitate to contact TSI.