As outlined in Edition 7 of this Briefing, the European Central Bank (ECB) made several amendments to the collateral eligibility requirements for asset-backed securities (ABS) which took effect from 1 October 2013, including to implement a requirement for ABS subject to the ECB's loan-level reporting requirements to have two 'Single A' ratings at issuance. The ECB has further amended those requirements, by way of a further Decision (and related Guidance), which clarifies that "all asset-backed securities shall have at least two credit assessments at a 'Single A' level from any accepted ECAI for the issue" (provided they meet all of the ECB's eligibility requirements). The specific language requiring the credit assessment to apply "both at issuance and over the lifetime of the security" has also been removed. The ECB has also issued a related Guideline, which amends the earlier ECB Guidelines ECB/2007/9 and ECB/2013/4 to clarify that the requirement for two credit assessments of Single A now also apply to ABS backed by credit card receivables (they previously only applied to ABS that are subject to the ECB's loan-level reporting requirements (namely, RMBS, SME ABS, CMBS, consumer finance ABS, leasing ABS and auto loan ABS)). The Guideline also incorporates a new requirement for ABS not meeting the two Single A credit assessment requirement - they are (temporarily) allowed to be rated BBB, but must meet a series of additional requirements (originally introduced by Guideline ECB/2013/4) which clarify that: the cash-flow generating assets backing the ABS shall be residential mortgages, loans to SMEs, commercial mortgages, consumer finance assets, leasing, auto loans, or credit card receivables; there shall be no mix of different assets in the cash-flow generating assets; the assets shall not contain loans that are non-performing at the time of issuance, non-performing when incorporated in the ABS, or at any time, structured syndicated or leveraged; and the transaction documents must contain servicing continuity provisions. The Decision and Guideline enter into force on 1 April 2014.

Useful links

ECB Decision ECB/2014/11

ECB Guideline ECB/2014/12