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Eligibility Standards for Asset-Backed Securities

(For immediate release)

October 27, 1999
Bank of Japan

The Monetary Policy Meeting of the Policy Board has today decided to establish "eligibility standards for asset-backed securities" as attached.

This decision was made in line with "Basic Policy on the Eligibility as Collateral of Asset-Backed Securities and Debt Obligations Issued by Financial Institutions that Maintain Current Accounts with BOJ" as decided at the Monetary Policy Meeting of the Policy Board on September 21, 1999.

Attachment

Eligibility Standards for Asset-Backed Securities

Eligibility standards for asset-backed securities (hereinafter defined as securities whose principal and interest are mainly paid out of receivables from specific assets) as collateral for the Bank's credit shall be as follows:

1. Certainty of payment of principal and interest

(1) Creditworthiness of specific assets, etc.

Receivables from specific assets (which constitute original sources for paying principal and interest of asset-backed securities) should be deemed sufficient to pay the principal and interest of asset-backed securities, in light of the creditworthiness of specific assets and any supplementary means to enhance their creditworthiness.

(2) Structure of asset-backed securities

The structure of asset-backed securities should be deemed sufficient to satisfy the requirements described below, etc.

  1. (a) True sale
    If specific assets are transferred from originators to such persons as special purpose companies (hereinafter referred to as "SPC"), such transfer should be one that is deemed valid even in insolvency proceedings such as bankruptcy proceedings of originators.
  2. (b) Bankruptcy-remoteness
    Necessary measures should be taken to prevent insolvency proceedings or the dissolution of SPCs, including measures to restrict the power of originators, etc, to file bankruptcy petitions against SPCs.
  3. (c) Alternative measures for the collection of receivables from specific assets
    If the collection of receivables from specific assets is conducted by those other than an SPC, alternative measures should be prepared for cases when collection cannot be conducted because of insolvency proceedings such as bankruptcy proceedings against those conducting collection.

2. Marketability

Asset-backed securities should be publicly issued in Japan.

3. Without credit enhancement by financial institutions

Notwithstanding 1. (1) above, asset-backed securities whose creditworthiness is enhanced by financial institutions maintaining current accounts with the Bank shall not be eligible. However, asset-backed securities whose principal and interest would be deemed certain to be paid even without credit enhancement shall remain eligible.

4. Other eligibility standards

  1. (1) Asset-backed securities should be denominated in Japanese yen.
  2. (2) The governing law shall be Japanese law.
  3. (3) Other than (1) and (2) above, there should be no obstacles to the Bank exercising such rights as security interest.

(Supplementary provision)

These standards shall become effective October 27, 1999.