Article 4
Specification of the application of the forward-looking trigger referred to in Article 26c(5), third subparagraph, point (c), of Regulation (EU) 2017/2402
1. The forward-looking trigger shall be determined in accordance with paragraph 2 or with paragraph 4 of this Article, depending on the effective number of exposures in the pool (‘N’), calculated in accordance with Article 259(4) of Regulation (EU) No 575/2013, at the closing date of the transaction.
2. Where N is less than 100, the parties to the credit protection agreement shall set a threshold for the number of the largest securitised exposures towards individual obligors, calculated in accordance with paragraph 3.
The forward-looking trigger shall occur where, at any point in time, the number of the largest securitised exposures towards individual obligors, calculated in accordance with paragraph 3, falls below the threshold determined in accordance with the first subparagraph.
3. To determine the number of the largest securitised exposures towards individual obligors, as referred to in paragraph 2, the parties to the securitisation shall take the following steps in the following order:
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(a) |
they shall consolidate multiple exposures to the same obligor and treat them as a single exposure; |
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(b) |
they shall sort the consolidated exposures to individual obligors by their outstanding amount, in descending order; |
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(c) |
they shall add the outstanding amounts of the consolidated exposures towards individual obligors, starting with the largest exposure, in descending order; |
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(d) |
the addition referred to in point (c) shall stop before adding the next exposure results in the total being higher than the sum of the outstanding amounts of the most senior protected tranche and of the tranches subordinated to it. |
4. Where N is equal to or greater than 100, the parties to the credit protection agreement shall set a threshold for the increase between the ratio of the outstanding amount of the higher credit risk buckets, as determined according to paragraph 8, divided by the total outstanding amount of all the securitised exposures (‘higher credit risk buckets ratio’), and the corresponding ratio at the closing date of the transaction.
The forward-looking trigger shall occur where, at any point in time, the threshold determined in accordance with the first subparagraph is breached.
5. The parties to the credit protection agreement shall clearly set out in the transaction documentation the criteria for assigning exposures to credit risk buckets.
For the purposes of the first subparagraph, the parties to the credit protection agreement shall determine, in the credit protection agreement, the differentiation between individual credit risk buckets based on the following:
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(a) |
the grades referred to in Article 170(1), point (b), of Regulation (EU) No 575/2013, where the originator applies the IRB Approach in accordance with Part Three, Title II, Chapter 3 of that Regulation to determine the own funds requirements for credit risk for securitised exposures to corporates, with the exception of specialised lending exposures referred to under point (b), institutions and central governments and central banks; |
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(b) |
the grades referred to in Article 170(2) of Regulation (EU) No 575/2013, where the originator applies the IRB Approach in accordance with Part Three, Title II, Chapter 3 of that Regulation to determine the own funds requirements for credit risk for securitised exposures that are treated as specialised lending exposures to which the methods set out in Article 153(5) of that Regulation apply; |
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(c) |
the grades or pools referred to in Article 170(3), point (b), of Regulation (EU) No 575/2013 where the originator applies the IRB Approach in accordance with Part Three, Title II, Chapter 3 of that Regulation to determine the own funds requirements for credit risk for securitised exposures that are treated as retail exposures; |
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(d) |
in all other cases, in accordance with the applicable accounting framework applied by the originator in its financial statements. |
6. The parties to the credit protection agreement shall assign the following exposures to higher credit risk buckets from the credit risk buckets determined in accordance with paragraph 5:
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(a) |
all exposures in default as referred to in Article 178(1) of Regulation (EU) No 575/2013; |
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(b) |
all exposures to a credit-impaired debtor; |
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(c) |
all other exposures entailing higher credit risk according to the credit protection agreement, other than those referred to in points (a) and (b). |
The parties to the credit protection agreement shall exclude from the assignment referred to in the first subparagraph all exposures that have been subject to a credit event under the credit protection agreement and for which an interim or a final credit protection payment has been made that has reduced the total amount of the protected tranche and the other tranches that are subordinated to it.
7. Where the securitised exposures include more than one of the groups of exposures referred to in paragraph 5, points (a) to (d), the parties to the credit protection agreement shall assign the exposures to the higher credit risk buckets for each of these groups determined in accordance with paragraph 5.
8. For the purposes of paragraph 4, the outstanding amount of the higher credit risk buckets shall be the sum of the outstanding amounts of all the securitised exposures assigned to the buckets in accordance with paragraph 6 and 7.