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SECN 5.8 Retention of the first loss tranche

SECN 5.8.1R
  1. (1)

    1The retention of the first loss tranche referred to in SECN 5.2.8R(1)(d) may be fulfilled by holding either on-balance sheet or off-balance sheet positions and by either of the following methods:

    1. (a)

      provision of a contingent form of retention or of a liquidity facility in the context of an ABCP programme, which fulfils all of the following criteria:

      1. (i)

        the exposure covers at least 5% of the nominal value of the securitised exposures;

      2. (ii)

        the exposure constitutes a first loss position in relation to the securitisation;

      3. (iii)

        the exposure covers the credit risk for the entire duration of the retention commitment;

      4. (iv)

        the exposure is provided by the retainer; and

      5. (v)

        the investors have been given access within the initial disclosure to all information necessary to verify that (i) to (iv) are complied with; or

    2. (b)

      over collateralisation, if it operates as a ‘first loss’ position of not less than 5% of the nominal value of the securitised exposures.

  2. (2)

    Where the first loss tranche exceeds 5% of the nominal value of the securitised exposures, the retainer may choose to retain a pro-rata portion of such first loss tranche only, provided that portion is equivalent to at least 5% of the nominal value of the securitised exposures.