Regulation 14 - Credit enhancement and liquidity facilities - Securities And Exchange Board Of India (Issue And Listing Of Securitised Debt Instruments And Security Receipts) Regulations, 2008

Credit enhancement and liquidity facilities. 14. (1) A special purpose distinct entity may opt for credit enhancement of the asset pool, subject to making full disclosures of the arrangements in the offer document or the particulars submitted to the recognised stock exchange. (2) A special purpose distinct entity may avail the services of a liquidity provider, subject to making full disclosures of the arrangements in the offer document or the particulars submitted to the recognised stock exchange. 1 [ (3) The special purpose distinct entity, while availing the services of a liquidity provider shall ensure that: (i) The liquidity facility provider is regulated by at least one financial sector regulator. (ii) The facility is structured separately from other arrangements, with clear documentation detailing its nature, purpose, scope, and performance standards in a written agreement executed at the time of the transaction and disclosed in the offer document. (iii) The facility is provided on an arms-length basis , under market terms, and subject to the provider s usual credit approval and review process. (iv) Payment of fees or income related to the facility is not subordinated, deferred, or waived. (v) The facility is limited to a specified amount and duration. (vi) The duration is not exceeding the earlier of: (a) settlement of all claims related to the securitized debt instruments notes issued by the special purpose distinct entity; or (b) termination of the facility provider s obligations. (vii) There shall be no recourse to the facility provider beyond its fixed contractual obligations. (viii) A legal opinion is obtained confirming that the agreement protects the facility provider from liability to investors or special purpose distinct entities or trustee, except for its contractual obligations. (ix) The special purpose distinct entities and/or investors have the right to select an alternative provider, subject to compliance with these conditions. (x) The documentation clearly defines the circumstances under which the facility may or may not be accessed. (xi) The facility shall only be drawn if there are sufficient non-defaulted assets to cover it or if a significant credit enhancement covers potential non-performing assets. (xii) The facility shall not be used for: (a) providing credit enhancement; (b) covering the issuer s losses; (c) acting as permanent revolving facility (i.e. liquidity support should be used as an exception rather than the norm); or (d) covering losses in the underlying assets prior to a drawdown. (xiii) The facility shall not be available for: (a) meeting recurring securitisation expenses; (b) funding additional asset acquisition by the special purpose distinct entity; (c) covering final scheduled repayments to investors; or (d) addressing warranty breaches. (xiv) The facility shall be provided to the special purpose distinct entity, not directly to investors. (xv) Once drawn, the facility provider shall have priority over future cash flows from the underlying assets, ranking senior to the senior tranche. (xvi) The originator shall not be liable for any shortfall in liquidity support provided by an independent third party. (4) If any of the conditions mentioned in sub-regulation (3) are not met, the liquidity facility shall be regarded as serving the economic purpose of credit enhancement and such third-party liquidity facility shall be classified as credit enhancement. (5) The liquidity facility shall only be drawn for short periods and not used for two consecutive repayment cycles. ] **************** NOTES:- 1 . Inserted vide F. No. SEBI/LAD-NRO/GN/2025/247 dated 05-05-2025