BANK 4.6.28 Liquidity facility and eligible liquidity facility

(1) A liquidity facility, for a securitisation, is a commitment from the facility provider to provide liquid funds if:
(a) funds are needed to meet contractual payments to investors; and
(b) there is a delay between the date of collection of the related cash flows and the date on which the payment to the investors is due.

Example

Timing mismatches between cash collections from the underlying assets and the scheduled payments to the investors in certain securitisation structures may require liquidity facilities to be built into the structures.
(2) To be an eligible liquidity facility:
(a) the commitment to provide liquid funds must be in writing and must clearly state the circumstances under which the facility may be availed of and the limits for any drawdown;
(b) drawdowns must be limited to the amount that is likely to be repaid fully from the liquidation of the underlying exposures and any seller-provided credit enhancements;
(c) the facility must not cover any losses incurred in the underlying pool of exposures before a drawdown;
(d) the facility must not be structured in such a way that drawdowns are certain;
(e) the facility must be subject to an asset quality test that precludes it from being availed of to cover credit risk exposures that are past due for more than 90 days;
(f) if the exposures that the facility is required to fund are ECRA-rated securities, the facility can only be used to fund securities that are rated, by an ECRA, investment grade at the time of funding;
(g) the facility cannot be availed of after all applicable credit enhancements (whether transaction-specific or programme-wide enhancements), from which the liquidity would benefit, have been exhausted; and
(h) the repayment of drawdowns on the facility (that is, assets acquired under a purchase agreement or loans made under a lending agreement):
(i) must not be subordinated to any interests of any note holder in the programme (such as an ABCP programme); and
(ii) must not be subject to deferral or waiver.
Inserted by QFCRA RM/2017-2 (as from 1st April 2017).