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Debt Securities that Meet Specific Credit Rating Criteria May Serve as the Underlying Assets for Securitization
From: Financial Supervisory Committee, Executive Yuan
Date: 08/08/2006
Ref. No.: Jin-Kuan-Yin-(4)-Zi-No.09500327360
Full text:
1. The following assets that meet specific criteria may serve as debt securities prescribed in item (5), subparagraph 2, paragraph 1, Article 4 of Financial Asset Securitization Act:
(1) Domestic corporate bonds, domestic bank debentures (including subordinate corporate bonds, subordinate bank debentures and strip bonds of the aforementioned debt securities), beneficial securities and asset-backed securities under the Financial Asset Securitization Act and beneficial securities of real estate asset trust under the Real Estate Securitization Act.
(2) Domestic preferred shares.
(3) Foreign government bonds, foreign corporate bonds, foreign collateralized debt obligations (CDO) and foreign principal protected notes.
The domestic corporate bonds and domestic bank debentures in (1) and foreign corporate bonds in (3) above exclude equity-linked debt securities (e.g. with conversion right or warrant).
2. The specific criteria required of debt securities in Point 1 (1) refer to any of the following credit rating criteria:
(1) Standard & Poor’s Corp. has assigned the obligor (issuer or guarantor) or the debt security a long-term credit rating of BBB- or above.
(2) Moody’s Investors Service has assigned the obligor (issuer or guarantor) or the debt security a long-term credit rating of Baa3 or above.
(3) Fitch Inc. has assigned the obligor (issuer or guarantor) or the debt security a long-term credit rating of BBB- or above.
(4) Taiwan Ratings Corp. has assigned the obligor (issuer or guarantor) or the debt security a long-term credit rating of twBBB- or above.
(5) Taiwan branch of Fitch Ratings has assigned the obligor (issuer or guarantor) or the debt security a long-term credit rating of BBB-(twn) or above.
(6) Moody’s Taiwan Corporation has assigned the obligor (issuer or guarantor) or the debt security a long-term credit rating of Baa3.tw or above.
3. The specific criteria required of debt securities in Point 1 (2) include:
(1) Having a term of less than ten (10) years and having provisions for fixed-sum or fixed-rate dividend, mandatory redemption, cumulative and non-conversion to common shares;
(2) Holders do not have the right to vote or be elected in the common shareholders’ meeting, and are not entitled to cash dividends or stock dividends through capitalization of earnings distributed to common shareholders;
(3) The issuer never has the episode of default or late payment of principal or interest for previously issued corporate bonds, preferred stocks or other debts, and its average after-tax income in three years prior to the issue or in the years in business provided the issuer has not been in business for three years amounts to at least 300% of the dividends payable on the preferred shares planned to be issued; and
(4) The long-term credit rating of the issuer is equivalent to the Standard & Poor’s rating of A+ or above or Taiwan Ratings Corp’s rating of twA+ or above. The preceding provision does not apply to privately placed beneficial securities or asset-backed securities.
4. The specific criteria required of debt securities in Point 1 (3) include:
(1) The securitization deal is aimed to address the liquidity issue of structured notes and principal only bonds in a bond fund. If the aforesaid condition is not met, the securitization must be coupled with purchasing same amount of structured notes and principal only bonds from the bond fund.
(2) If the debt securities are foreign ABS whose cash flows are backed by installment payment of principal and interest (e.g. residential mortgage backed securities, RMBS), the initial percentage of such ABS shall not exceed 60% of the securitized asset pool; if the debt securities are foreign government bonds, foreign corporate bonds, foreign principal-protected notes or other foreign ABS, the initial percentage of such bonds shall not exceed 50% of the securitized asset pool.
(3) Debt securities that are foreign ABS shall only be linked to the credit risk associated with the underlying asset pool and shall not be linked to equity, stock price or other risks, nor shall the foreign ABS be synthetic cash CDO^2 or synthetic CDO^2. Cash flow CDOs are limited to RMBS CDO.
(4) If the debt securities are foreign principal protected notes (PPN), the ratio of protected principal shall not be less than the 100% value of transaction price in original denomination and the calculation of yield or settlement upon termination or expiration of contract shall be free of conditions that would affect fair market price or damage the interest of the investor. The principal protected notes may also be linked to any of the following in addition to the credit risk of the underlying asset pool:
A. Domestic underlying:
a. TSEC (GTSM) listed stocks (single stock or pool of stocks) that may underlie a call (put) warrant.
b. Stock indices, exchange-traded funds (ETF), interest rate products, stock index or interest rate futures published by Taiwan Stock Exchange Corporation or GreTai Securities Market, or combination thereof.
c. Domestic beneficial securities (including subordinated securities) under the Financial Asset Securitization Act and domestic beneficial securities (including subordinated securities) under the Real Estate Securitization Act.
d. Call (put) warrants that are issued in compliance with the Criteria Governing Applications for Issuance of Call (Put) Warrants by Issuers promulgated by the Financial Supervisory Commission and settled in cash only.
B. Foreign underlying: Foreign securities, stock indices, futures indices and interest rate indices, or combination thereof.
a. The foreign securities may not be linked to corporate bonds issued overseas by a domestic corporation, securities issued by a domestic listed corporation, beneficiary certificates issued overseas by a domestic securities investment trust enterprise, or securities issued by a government, enterprise or institution in Mainland China and traded on a Mainland China exchange or a Hong Kong exchange.
b. Foreign underlying that is linked to a foreign stock index or stock index futures may not be linked to stock index or stock index futures in Mainland China markets or any financial derivatives related to MSCI Taiwan Index.
c. Foreign underlying that is linked to an interest rate index may not be linked to any bond or money market interest rate index in Mainland China markets.
(5) If the debt security meets any of the credit rating criteria:
A. Standard & Poor’s Corp. has assigned the obligor (issuer or guarantor) or the debt security a long-term credit rating of BBB+ or above.
B. Moody’s Investors Service has assigned the obligor (issuer or guarantor) or the debt security a long-term credit rating of Baa1 or above.
C. Fitch Inc. has given the obligor (issuer or guarantor) or the debt security a long-term credit rating of BBB+ or above.
D. If the debt securities are RMBS CDOs, the credit rating of the underlying asset pool and the RMBS CDOs shall have a S&P rating of A or above (or equivalent), and the credit rating of asset pool borrower shall have a rating of Alt-A or above. If there is a RMBS CDO manager, the management shall be limited to managing the prepayment risk and maintaining the aforementioned credit ratings.
5. If the asset pool includes debt securities no other than those mentioned above, the beneficial securities or asset-backed securities issued shall be rated by a credit rating institution recognized by the competent authority pursuant to Article 102 of the Financial Asset Securitization Act; the asset pool shall not be altered after it has been entrusted to a trustee or transferred to a special-purpose company.
6. If the aforesaid beneficial securities or asset-backed securities are publicly offered:
(1) The debt securities in asset pool as prescribed in Point 1 (1) herein shall be TSEC (GTSM) listed.
(2) The foreign collateralized debt obligations (CDO) and foreign principal protected notes in asset pool as prescribed in Point 1 (3) herein shall have a face value of no less than NT$10 million per note.
7. The FSC order Ref. No. Jin-Kuan-Yin-(4)-Zi-No.09585000910 dated January 20, 2006 ceases to apply, effective from this day. |