How to issue Asset-Backed Securities?

We present the requirements and work process for issuing ABS.

Loan Asset Criteria for Issuing ABS

Legal criteria approved by the Board of Directors of the Special Purpose Company

For loan assets (Auto loan)

  1. The loan must be originated in accordance with the relevant procedures, with an individual loan file opened and documentation completed according to standards
  2. The loan agreement must be made in accordance with the law
  3. The loan asset must legally be under the full ownership of the primary obligor and, with respect to parties other than the original lender, be free from any obligations in any manner
  4. The loan must not be prohibited or restricted, for the primary obligor, by law, contract, or otherwise, from being transferred to a third party together with the subject matter of the fiduciary agreement free from any obligation
  5. As of the cut-off date, the loan for which the principal borrower and co-borrower are obligated must not have been previously sold to the securities issuer, must not have been repaid, and must have no debt obligation
  6. The information of the loan pool must be consistent with the primary loan documents

Required Agreements and Procedures for Issuing ABS

Procedures to be approved within the scope of ABS issuance:

  • Board of Directors operating procedure
  • Procedure for selecting and replacing the independent auditor
  • Procedure for selecting and replacing the service provider and trust asset manager
  • Trust asset management procedure
  • Procedure for collecting securities payments and making payments
  • Internal control procedure for identifying, assessing, and managing risks and conflicts of interest
  • Procedure for preventing money laundering and terrorism financing
  • Information disclosure procedure

Agreements to be concluded within the scope of ABS issuance:

  • Asset sale and purchase agreement
  • Fiduciary and pledge of claim rights agreement
  • Payment collection service agreement
  • Trust asset management agreement
  • Administrative service agreement
  • Software lease agreement (if necessary)

Steps for Establishing a Special Purpose Company

The establishment of a special purpose company involves work carried out in the following 3 steps.

  1. Company name verification
  2. Decision of the authorized person
  3. On establishing a subsidiary company
  4. Approval of the opening balance
  5. Select the Chair of the Board of Directors and the Secretary of the Board of Directors
  6. Open a temporary bank account and deposit the share capital
  7. Register the company with the State Registration
  1. Decision of the authorized person
  2. On making changes to the scope of activities
  3. Approve the draft company charter
  4. Grant the Chair of the Board of Directors the authority to sign as the first signatory
  5. Appoint the entity to provide independent audit services and approve the “Procedure for Selecting and Replacing the Independent Auditor”
  6. Submit the package of documents to the FRC
  1. Obtain the resolution of the Financial Regulatory Commission and the Special License certificate
  2. Register the amended charter and obtain the charter, certificate, and seal
  3. Submit the copies of the certificate and charter registered with the State Registration to the FRC

Key Requirements for Obtaining Approval to Register Asset-Backed Securities

  • Securities prospectus (as specified in Clause 5.7 of the FRC regulation)
  • Whether the service provider meets the following requirements:
    • Must have at least three years of operating experience in the banking and financial market
    • The Chair of the Board, members, Chief Executive Officer of the service provider, and at least two specialists providing services to the SPC must have continuous experience of one year or more in the financial market
    • Must have at least three Board members, one-third of whom are independent members, and must report the company’s operations to the public transparently and openly
    • If it is a licensed entity, it must be an entity that has met the prudential ratio requirements approved by the competent state authority and ensured governance and transparency of information reporting
  • Agreement on transfer of the asset pool
  • Conclusion issued by an auditor registered with the FRC who provided audit services in the securities issuance activity (Independent financial due diligence)
  • Conclusion issued by a legal entity registered with the FRC that provided independent legal advisory services in the securities issuance activity (Independent legal due diligence)

ABS Loan Pool Analysis and Criteria

“MICG” LLC organized practical recommendations and training for NBFIs on the opportunities to raise and mobilize funds from the capital market. We are presenting the training on “Financial Analysis and Criteria of the Asset Pool.”