The Bank of England (BofE) published detailed data and other requirements for securitizations to remain eligible under its discount window.
The new requirements will come into force from December 1, 2011. Bonds not meeting the criteria may still be permitted with an additional haircut that increases by five percentage points each month until December 1, 2012. This is when all securities are expected to comply.
Last week, the BofE extended the range of collateral eligible for the Discount Window Facility to include portfolios of loans to individuals and nonbanking companies as well.
According to Royal Bank of Scotland (RBS) analysts, the current compliance among U.K. master trusts is between 50% and 70%.
In addition to the asset class specific requirements, there is a universal requirement for the full documentation related to the transaction to be available on a Web site.
The required documents include the prospectus and all closing documents such as swap documentation, the asset sale, servicing, administration, cash management, account bank, GIC, liquidity facility and sub-loan agreements, trust deeds and any other documents referenced in the public documents or that could have an impact on the cash flows in the transaction.
These requirements will also be applied to private deals where they are from the same program or could have an impact on cash flows; the only concession being that certain commercially sensitive terms may be redacted from private deal documents where these have no bearing on the cash flows in the relevant transaction. The only explicit exclusion from these requirements is for legal opinions.
"In our opinion these proposals are positive for the market in the longer term." RBS analysts said. "The vastly greater quantity and increased standardization of data should allow investors to gain a better of deals more easily, more accurate comparison of deal performance, to allow analysis of the underlying collateral to a far greater level of sophistication and to enable better scrutiny over how deals are managed."
However, analysts noted that the new requirements come with significant challenges and increased implementation costs, which will inevitably fall impact sponsors of covered bond programs and RMBS.
"The European Central Bank has yet to publish its requirements but it looks likely that there requirements for U.K. entities will end up being notably more stringent than in the Euro area, which would certainly not be a level playing field," RBS analysts noted.