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Glossary

IMPORTANT NOTES:

Capitalised and underlined terms are defined elsewhere in the Glossary.

There are several terms in the glossary that have similar or conflicting interpretations. For ease of use, certain terms are used consistently throughout this glossary as follows:

Obligor – the person, Debtor or borrower liable in respect of the Receivables. The term Obligor is used throughout, rather than borrower, because it applies to all Receivable types, not just Loan Receivables.

Receivable - a contract under which the Obligor owes Principal and Interest on its Debt to the lender. Within a Securitisation, the Receivable is an Asset of the SPV. Examples typically include Mortgage Loans, other personal or corporate Loans, Leases, and hire purchases.
For the purposes of this glossary, Receivable will be used to describe the Loan, Lease, hire purchase or other financial contract whose cash flows underlie the Securitisation.

Asset - An item of value that can be converted to cash, and may generate a cash flow. In a Securitisation transaction, the Assets comprise the Receivables that generate cash flows, and technically also include any other Assets owned by the SPV, such as cash in Reserve Accounts.
Assets are often called many other names in a Securitisation – Collateral, Pool, Receivables, or securities. For the purposes of this glossary, Assets will refer to the Receivables AND other cash reserves available to the Securitisation.

Debt Security - A written promise to pay a stipulated sum of money to a specified party under conditions mutually agreed upon and secured by Collateral. Bonds, notes, and any other forms of securitised Debt issuance, are referred to as Debt Securities.

    1

    Rule 144A of the US Securities Act enables Debt Securities to be sold without registration with the US Securities and Exchange Commission. This is subject to the condition that offers may not be made to persons other than qualified institutional buyers.
    Rule 144A was implemented in order to induce foreign companies to sell securities in the US capital markets, and is one of the key offer types that Australian Securitisation Issuers use to issue into the US market.
    Rule 144A issues are denominated in US dollars.
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    a

    In securitisation, AAPR stands for Average Annual Percentage Rate. It is a measure of the total cost of a loan, including interest, fees, and other charges. The AAPR is calculated over a seven-year period and is expressed as a percentage of the loan amount.

    The AAPR is a useful tool for borrowers to compare different loan options and to make sure that they are getting the best possible deal. It is also a useful tool for lenders to ensure that they are charging borrowers a fair price for their loans. 
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    Accelerated amortization is a provision in a securitization structure that allows for the early repayment of principal on the underlying assets. 
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    In securitisation, an acceleration clause is a provision in a securitisation agreement that allows the securitisation issuer to demand full repayment of the securitisation notes if certain events occur. These events may include, but are not limited to, a default by the underlying borrower, a change in the credit rating of the underlying borrower, or a change in the law that adversely affects the securitisation. 
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    Accrued interest is the interest that has accumulated on a loan or other financial asset but has not yet been paid. Accrued interest is typically paid when the loan or asset is sold or when the borrower makes a payment. In securitisation, accrued interest is typically included in the securitisation pool. 
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    In securitisation, Actual/360 is a day-count convention that is used to calculate the interest that is due on a loan or other financial asset. The Actual/360 day-count convention calculates the interest based on the actual number of days in the accrual period, but it uses a 360-day year. 
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    An adjustable-rate mortgage (ARM) is a type of mortgage loan where the interest rate can change periodically, usually every year or every few years. The interest rate on an ARM is usually lower than the interest rate on a fixed-rate mortgage in the beginning, but it can go up over time. 
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    In securitisation, an advance rate is the percentage of the value of the collateral that a securitisation issuer is willing to lend to a borrower. The advance rate is used to determine the maximum loan amount that a borrower can receive from a securitisation. 
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    An advance rate in securitization is the percentage of the value of the collateral that a securitization issuer is willing to lend to a borrower. The advance rate is used to determine the maximum loan amount that a borrower can receive from a securitisation. 
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    Adverse selection in securitization is a situation where borrowers with lower credit quality are more likely to be securitized than borrowers with higher credit quality. This can happen because securitization issuers have limited information about the borrowers who are applying for loans. As a result, they may be more likely to lend to borrowers who appear to be risky, but who are actually hiding their true credit quality.
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    In securitisation, adverse selection is a situation where borrowers with lower credit quality are more likely to be selected for securitisation than borrowers with higher credit quality. This can happen because borrowers with lower credit quality are more likely to be offered loans at a lower interest rate, which makes them more attractive to securitisation issuers. 
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    Overall, affiliates can be a useful tool for securitisation, but they also come with some risks. Investors should carefully consider the risks and benefits of investing in securitizations that use affiliates.
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    A-IFRS stands for Australian Interpretations and Financial Reporting Standards. It is a set of interpretations and standards issued by the Australian Accounting Standards Board (AASB) that supplement the International Financial Reporting Standards (IFRS).

     
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    Amortisation in securitisation refers to the process of repaying the principal amount of a loan or debt over time. In securitisation, amortisation is typically achieved through the sale of securities backed by the loan or debt. As the securities are paid off, the principal amount of the loan or debt is reduced.


     
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    An annual percentage rate (APR) is the cost of borrowing money expressed as a yearly rate. It includes interest as well as other charges associated with the loan. The APR is expressed as a percentage of the loan amount. For example, an APR of 10% on a $10,000 loan would mean that the borrower would pay $1,000 in interest over the life of the loan.

     
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    An application fee securitisation is a type of securitisation in which the underlying assets are application fees. Application fees are typically charged by lenders to borrowers when they apply for a loan. The fees are used to cover the costs of processing the application and underwriting the loan.

    In an application fee securitisation, the lender will sell the application fees to investors. The investors will then receive a stream of payments from the lender, which will be based on the amount of application fees collected.

     
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    An application fee securitisation is a type of securitisation in which the underlying assets are application fees. Application fees are typically charged by lenders to borrowers when they apply for a loan. The fees are used to cover the costs of processing the application and underwriting the loan.

    In an application fee securitisation, the lender will sell the application fees to investors. The investors will then receive a stream of payments from the lender, which will be based on the amount of application fees collected.

     
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    In securitisation, APS stands for Asset Protection Scheme. It is a type of insurance that protects investors from losses in the event of a default on the underlying assets. APS is typically purchased by the issuer of the securitisation, and it can be used to cover losses on both principal and interest payments.
     
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    In the context of securitisation, arbitrage is the practice of buying and selling securities in different markets or in different forms in order to make a profit from a difference in the price. For example, an investor might buy a securitisation security in one market and sell it in another market at a higher price. The investor would make a profit on the difference in the prices.

     
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    An arranger is a financial institution that is responsible for putting together the securitisation transaction. The arranger typically works with the issuer, the investors, and the servicer to structure the transaction and to market it to investors.
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    Arrears is a term used to describe a debt that is overdue. It can also refer to a situation where payments are not being made on time. For example, if you have a loan and you miss a payment, you are in arrears on your loan. If you are in arrears on a debt, it is important to contact your creditor as soon as possible. 
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    ASIC stands for Australian Securities and Investments Commission. It is an independent Australian Government body that was established in 1998. ASIC's role is to protect consumers, investors, and creditors from financial fraud, and to ensure that the financial system is fair, efficient, and transparent.

     
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    An asset in relation to securitisation is a loan, lease, or other receivable that is pooled together with other assets and then sold to investors as securities. The assets that are securitized can be a variety of types, including residential mortgages, commercial mortgages, student loans, and credit card receivables.
     
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    An asset lender is a financial institution that provides loans to businesses and individuals using the borrower's assets as collateral. This type of lending is often used by businesses to finance working capital needs or to purchase equipment. Individuals may use asset lending to finance a variety of expenses, such as home improvements or medical bills.

     
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    Asset-backed commercial paper (ABCP) is a type of short-term debt instrument that is backed by a pool of assets. The assets that back ABCP can be a variety of types, including receivables, loans, or leases.

     
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    Asset-backed commercial paper (ABCP) is a type of securitization that involves the sale of short-term debt securities backed by a pool of assets. ABCP is typically issued by a special purpose vehicle (SPV) that is created by a bank or other financial institution. 
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    An asset-backed security (ABS) is a type of security that is backed by a pool of assets. The assets that back ABS can be a variety of types, including receivables, loans, or leases.

    ABS is issued by a special purpose vehicle (SPV), which is a legal entity that is set up specifically to issue ABS. The SPV typically borrows money from investors by selling ABS. The SPV then uses the money to purchase the assets that will back the ABS.

     
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    ABS stands for Asset-Backed Security. It is a type of security that is backed by a pool of assets, such as loans, receivables, or leases. ABSs are often issued by special purpose vehicles (SPVs), which are created to hold the assets and issue the securities.
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    AONIA stands for Australian Overnight Index Average. It is the daily reference rate for unsecured overnight loans between banks in Australia. AONIA is administered by the Reserve Bank of Australia (RBA). AONIA is used as a benchmark rate for a variety of financial products, including interest rate swaps, floating-rate loans, and securitisations. It is also used as a reference rate for the calculation of the Australian Consumer Price Index (CPI).
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    Austraclear is a central securities depository (CSD) in Australia. It is a wholly owned subsidiary of the Australian Securities Exchange (ASX). Austraclear provides settlement and depository services for a wide range of securities, including government bonds, corporate bonds, and equities.

     
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    AASB stands for Australian Accounting Standards Board. The AASB is the national standard-setting body for accounting in Australia. It is responsible for developing and issuing accounting standards that are used by businesses and other organizations in Australia. 
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    The AOFM, or Australian Office of Financial Management, is a government agency that is responsible for managing the Australian Government's debt and financial assets. The AOFM also plays a role in the securitisation market in Australia.
     
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    APRA stands for the Australian Prudential Regulation Authority. It is an independent statutory authority that was established in 1998 to promote financial system stability in Australia. APRA's mandate is to protect the Australian community by ensuring that, under all reasonable circumstances, financial promises made by institutions it supervises are met within a stable, efficient and competitive financial system.
     
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    The Australian Securitisation Forum (ASF) is the peak industry body representing participants in the securitisation and covered bond markets in Australia and New Zealand. The ASF was formed in 1989 to promote the development of securitisation in Australia and New Zealand. The ASF has over 100 members, including banks, non-bank lenders, investors, servicers, and other service providers.
     
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    An Authorised Deposit-taking Institution (ADI) is a financial institution that is authorised by the Australian Prudential Regulation Authority (APRA) to accept deposits from the public. ADIs are subject to a range of prudential standards designed to protect depositors and ensure the stability of the financial system.
     
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    In securitisation, ADI stands for Authorised Deposit-taking Institution. ADIs are banks, building societies, and credit unions that are authorised by the government to accept deposits from the public. 
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    The specific authorised investments that are permitted for a particular trust will vary depending on the trust's objectives and the governing documents. However, some common authorised investments include:

    - Cash
    - Government bonds
    - Corporate bonds
    - Preference shares
    - Ordinary shares
    - Money market funds
    - Exchange-traded funds (ETFs)
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    Average Annualised Percentage Rate (AAPR) is a measure of the total cost of borrowing money over a period of time, taking into account additional fees and ongoing charges in addition to the interest rate. It is calculated by dividing the total cost of borrowing by the amount borrowed and multiplying by 100.
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    b

    A backup servicer is a company that is appointed to take over the servicing of a securitized loan portfolio if the primary servicer is unable to do so. The backup servicer is typically appointed in the securitization transaction documents and is typically a financial institution or other experienced servicer.
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    A balloon loan is a type of loan that requires a large, one-time payment at the end of the loan term. This is in contrast to a traditional amortized loan, where the borrower makes regular payments over the life of the loan that gradually reduce the principal balance.
     
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    A banker's lien is a legal right that a bank has to hold onto any property or assets that a customer has deposited with the bank until the customer has paid off their outstanding debts. This lien can be used to secure any type of debt, including loans, credit card bills, and overdrafts.
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    Bankruptcy is a legal process that allows a person or business to get out of debt. When a person or business files for bankruptcy, they are protected from their creditors from collecting on their debts. This allows the person or business to get a fresh start and reorganize their finances.
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    The term "bankruptcy-remote" refers to a structure that is designed to protect investors from the risk of bankruptcy of the issuer of the securities. This is achieved by creating a separate legal entity, known as a special purpose vehicle (SPV), to hold the assets that are being securitised. The SPV is then insulated from the bankruptcy of the issuer by a number of legal and structural features, such as a bankruptcy remote trust deed.
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    In the context of securitisation, a base case loss assumption is the expected percentage of the principal amount of a securitised asset that will default over a specified period of time. This assumption is used to calculate the expected losses for a securitisation transaction and to determine the appropriate credit rating for the securities issued by the transaction.
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    A basis point (bp) is a unit of measurement equal to one hundredth of a percentage point. In the context of securitization, basis points are often used to measure interest rates, credit spreads, and other financial variables.
     
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    Basis risk is the difference between the price of an underlying asset and the price of a derivative contract that is based on that asset. Basis risk can be caused by a variety of factors, including changes in interest rates, changes in credit spreads, and changes in the volatility of the underlying asset.
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    A basis swap is a financial derivative contract in which two parties agree to exchange interest payments based on different interest rates or different reference rates. Basis swaps are often used to hedge against basis risk, which is the risk that the returns on two different assets will not move in perfect correlation.
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    BBSW stands for Bank Bill Swap Rate. It is a short-term interest rate benchmark for the Australian dollar. It is calculated as the average of the rates at which banks are willing to swap floating-rate payments for fixed-rate payments. BBSW is widely used in Australia as a reference rate for a variety of financial products, including floating-rate loans, interest rate swaps, and derivatives.
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    BBSY stands for "Bank Bill Swap Yield". It's a reference rate used to calculate the interest rates on a variety of financial products, including securitisations. BBSY is calculated as the average of the yields on overnight indexed swaps (OIS) that are denominated in Australian dollars and have a tenor of 3 months.
     
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    Beneficial ownership is the right to enjoy the benefits of ownership of an asset, even if the legal title to the asset is held by someone else. For example, a person may hold the legal title to a property in trust for another person. In this case, the person who holds the legal title is the trustee, and the person who enjoys the benefits of ownership is the beneficial owner.
     
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    In the context of securitisation, a bid is an offer to purchase a security. A bid is typically made by an investor who is interested in purchasing the security at a specific price. The bid price is the price that the investor is willing to pay for the security.
     
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    A bond is a loan that an investor makes to a borrower. The borrower agrees to pay back the loan, plus interest, over a specified period of time. Bonds are typically issued by governments, companies, and other organisations to raise money.
     
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    In the context of securitisations, a bond factor is the ratio of the current stated amount of a class of debt securities to the original stated amount of the class. The bond factor is used to calculate the amount of principal that will be repaid to investors in the event of a default on the underlying assets.
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    Book Entry
    In the context of securitisations, book-entry refers to a system of recording ownership of securities that does not involve the physical transfer of certificates. In a book-entry system, ownership of securities is recorded in a central register, and investors are issued electronic records of ownership.
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    Bookbuild (also known as an institutional placement or syndicated placement ) is an investment banking process used to sell new securities to institutional investors. In a bookbuild, the issuer of the securities (typically a company or government) invites institutional investors to submit bids for the securities. The issuer then selects the bids that it accepts and determines the final price of the securities.
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    A Borrower is a person or entity that receives a loan from a lender. In the context of securitisation, borrowers are typically companies or other organisations that need to raise money to finance their operations. The loans that they receive are then packaged into securities and sold to investors.
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    In the context of securitisations, bps refers to basis points. Basis points are a unit of measurement equal to one hundredth of a percentage point. For example, an interest rate of 6% is equivalent to 600 bps.

     
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    Break costs are called break fees. Break fees are fees that are charged to an investor who cancels their investment in a securitisation before the end of the term. Break fees are typically used to cover the costs that the issuer incurs in issuing the securities, such as legal and accounting fees.


     
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    A broker is a person or organisation that facilitates the buying and selling of securities. Brokers typically charge a commission for their services. In the context of securitisations, brokers may be involved in a number of activities.
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    In the context of securitisations, a bullet refers to a bond that does not make any principal payments until maturity. All of the interest payments are made on a regular basis, but the principal is only repaid at the end of the bond's term.
     
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    A business day is a day on which banks and other financial institutions are open for business. Business days typically run from Monday to Friday, excluding public holidays.

    In the context of securitisations, business days are important for a number of reasons. For example, securities can only be traded on business days. Additionally, interest payments on securities are typically made on business days.


     
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    c

    A calculation agent is a person or entity that is responsible for calculating the payments that are due to investors in a securitisation. The calculation agent typically has a number of responsibilities. The calculation agent is typically appointed by the issuer of the securitisation. The calculation agent is typically a bank or other financial institution that has experience in securitisations.

     
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    A call date is the date on which a bond issuer can repurchase (call) the bonds from investors at a specified price. The call date is typically specified in the bond's indenture, which is the legal document that outlines the terms of the bond issue.
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    A call option is a contract that gives the holder the right, but not the obligation, to buy an underlying asset at a specified price on or before a specified date. The call option buyer is known as the "option holder" and the call option seller is known as the "option writer".


     
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    Call protection is a feature of some securities that prevents the issuer from calling the securities back before a certain date. This means that investors who hold these securities can be confident that they will be able to hold onto them for the specified period of time.



     
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    A capital improvement is a major improvement to a property that increases its value. Capital improvements can include things like adding a new room, renovating a kitchen or bathroom, or installing new windows or doors.

     
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    Capital relief refers to a reduction in the amount of capital that a bank or other financial institution is required to hold. Capital relief can be provided by governments or regulators, and it can be used to encourage banks to make loans and investments.
     
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    A form of Credit Enhancement involving the maintenance of a Reserve Account that can be tapped in the event of credit losses and subsequent claims by investors.
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    If a caveat is lodged upon a title to land it indicates that another party other than the owner claims some right over or Interest in the property.
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    Collateralised Debt Obligation - a Debt Security backed by a pool of Bonds, Loans and other Receivables. CDOs do not specialize in one type of Debt but are often non-Mortgage Loans or Bonds. The CDO can be cash flow or synthetic (i.e. the credit value is derived from a Debt that the SPV does not actually own).
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    Credit Default Swap – A synthetic structure whereby the buyer of the CDS makes a series of payments to the Seller and, in exchange, the Seller of the CDS will compensate the buyer in the event of a Loan Default (for a Loan that is referenced in the CDS). Compensation for Loan Default is usually the Face Value of the Loan.
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    A time deposit held in a bank that pays Interest to the depositor.
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    A document identifying the ownership of land. It shows who owns the land and whether there are any Mortgages or other restrictions on it. This document (if issued) is usually held by the lender as Security for a Mortgage Loan.
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    The Term used to describe any right established over an Asset to secure a Debt or performance of an obligation.
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    A Debt that is unlikely to be repaid and is written off. This term can apply to either the underlying Receivable, or the Debt Security issued, but is more commonly used in reference to a Debt Security.
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    A chattel mortgage is a loan secured by personal property, such as a car, boat, or piece of equipment. In the context of securitisation, chattel mortgages can be pooled together to create a securitised product, such as a car loan ABS or equipment loan ABS. For example, a bank might pool together a bunch of car loans that it has issued. These loans would then be securitised and sold to investors.


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    A chattel is a type of personal property that is not real estate. This includes things like furniture, cars, and appliances. In the context of securitisation, chattels can be used to secure loans. For example, a bank might lend money to someone to buy a car, and the car would act as collateral for the loan. If the borrower defaults on the loan, the bank could repossess the car.
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    Cherry picking is a practice where the originator of a securitisation transaction selects the best assets to securitise, and leaves the riskier assets behind. This can be done to make the securitisation look more attractive to investors, and to reduce the risk of the originator.


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    One of a series of Debt Securities secured by a single pool of Receivables. The classes have different terms and conditions and rank in different orders in the payment Waterfall, leading to each class having varying levels of Credit Risk. Different classes can be denominated in different currencies and have differing maturity dates. Also referred to as a Tranche.
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    Provider of European post-trading services in a number of Debt Securities. It is also the International Central Securities Depository (ICSD) and the Central Securities Depository (CSD) for Germany. Clearstream is a major player in the securitisation market. It provides services to a wide range of securitisation transactions, and it is a trusted provider of securities settlement and custody services.
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    Clear title refers to the legal ownership of an asset. If an asset has clear title, there are no outstanding debts or liens against it. This means that the asset can be freely transferred to another party without any problems. Clear title is important in securitisation because it ensures that the investors in a securitisation have a valid claim to the underlying assets. 


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    The closing date is the date on which a securitisation transaction is completed. This is the date on which the underlying assets are transferred from the originator to the special purpose vehicle (SPV), and the securities are issued to the investors.


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    CMBS stands for commercial mortgage-backed security. It is a type of asset-backed security (ABS) that is backed by a pool of commercial mortgages. CMBS are typically issued by special purpose vehicles (SPVs), which are legal entities that are set up specifically to hold the underlying assets and issue the securities.


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    Any property or physical Asset (such as vehicles or equipment) with monetary value, given as Security for repayment of a Debt. Collateral is often called many other names in a Securitisation – Assets, Properties, Receivables, or Security. It is the Assets which underlie the Securitisation, the cash flows they generate, and any other cash, Assets or reserves owned by the SPV that form Collateral for a Securitisation.


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    CDO - a Debt Security backed by a pool of Bonds, Loans and other Receivables. CDOs do not specialize in one type of Debt but are often non-mortgage Loans or Bonds. The CDO can be cash flow or synthetic (i.e. the credit value is derived from a Debt that the SPV does not actually own).


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    When an Obligor falls behind, the lender contacts them in an effort to make the Receivable current again (i.e. all Arrears paid). The Receivable goes to ‘collection’. As part of the collection effort, the lender must mail and record certain documents in case they are eventually required to foreclose on the property or seize other physical Assets.


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    A collection account is a bank account that is used to hold the payments that are collected from the borrowers on the underlying assets in a securitisation transaction. The collection account is typically held by the special purpose vehicle (SPV) that was set up to hold the assets and issue the securities.


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    A collection period is the time period between when a payment is due from a borrower and when it is actually collected. The collection period can vary depending on the type of asset that is being securitised and the terms of the loan.


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    A commercial mortgage loan is a loan that is secured by commercial real estate. Commercial real estate includes properties such as office buildings, hotels, and retail stores. Commercial mortgage loans are typically issued by banks or other financial institutions to businesses that need to finance the purchase or development of commercial real estate.


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    CMBS - a Debt Security whose cash flow is backed by the Principal and Interest payments from a specified pool of Mortgage Loans that are secured by Mortgages over commercial property.


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    The risk that cash belonging to an issuing SPV is mixed with cash belonging to a third party (e.g. the Originator or Servicer) or goes into an account in the name of a third party in such a way that, in the Insolvency/Bankruptcy of the third party, such cash cannot be separately identified or the cash is frozen in the accounts of the third party.


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    The risk that large exposures to individual Obligors, or to certain types of Obligors or products, or geographic concentrations, may increase the Credit Risk of a portfolio. Generally, additional Credit Enhancement will be required to mitigate concentration risk in portfolios.


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    Conduit is a special purpose vehicle (SPV) that is used to securitise assets. Conduits are typically set up by financial institutions and are used to pool together a variety of assets, such as mortgages, loans, or receivables. The securities that are issued by the conduit are backed by the underlying assets, and the payments from the borrowers are used to pay off the securities.


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    In the context of securitisation, consolidated loans refer to a group of loans that are pooled together and securitised as a single security. This is done to reduce the risk of the securitisation by spreading it across a wider pool of assets.


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    A construction loan is a type of loan that is used to finance the construction of a property. Construction loans are typically short-term loans, with maturities of one to three years. The loans are secured by the property that is being constructed, and the payments from the borrower are used to pay for the construction costs. 


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    A contract of sale is a legal document that outlines the terms of a sale between a buyer and a seller. In the context of securitisation, a contract of sale is used to transfer the ownership of the underlying assets from the originator to the special purpose vehicle (SPV).


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    A period that may follow the Revolving Period of a transaction, during which the outstanding balance of the related Debt Securities is partially repaid. A controlled Amortisation period is usually 12 months in length.


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    The legal process for the transfer of ownership of Real Estate. It can be used to transfer the ownership of the underlying assets from the originator to the special purpose vehicle (SPV).


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    A cornerstone investor is an investor who commits to invest a significant amount of money in a securitisation transaction before it is marketed to the public. Cornerstone investors are typically large institutional investors, such as pension funds or insurance companies.


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    COSL offer an impartial dispute resolution service for resolving complaints with a participating financial service provider. Formerly known as MIOS (Mortgage Industry Ombudsman Service).


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    The contractual Interest obligations of an Issuer of Debt Securities. Usually comprises a Coupon Reference Index plus a Margin (e.g. 1 month BBSW + 125bps) OR a fixed coupon (e.g. 7%)


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    A coupon rate is the percentage of the face value of a security that is paid out to investors as interest each period. The coupon rate is typically fixed for the life of the security, but it can be floating, which means that it changes over time in accordance with a pre-agreed formula.

    For example, if a security has a face value of $100 and a coupon rate of 5%, then the investor will receive $5 in interest payments each year.

    The coupon rate is an important factor that investors consider when making investment decisions, as it determines the yield on the investment.

    Here are some examples of coupon rates in securitisation:

    • A mortgage-backed security (MBS) might have a coupon rate of 5%.
    • A credit card securitisation might have a floating coupon rate that is linked to the London Interbank Offered Rate (LIBOR).

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    The name of the base reference Coupon index, e.g. 3 month BBSW.


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    Debt Securities backed by cash flows from Mortgage Loan Receivables. They are similar in many ways to Asset-backed Securities, but Covered Bond Receivables remain on the Originator’s balance sheet, and hence Secured Creditors are exposed not only to the Credit Risk of the Receivables, but also to the Credit Risk of the Originator.


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    Constant (or Conditional) Prepayment Rate – the standard measure of Prepayments in Australia. CPR is the amount of Principal prepaid in excess of scheduled repayments expressed as an annualised percentage. The CPR is typically estimated based on historical prepayment rates for similar assets. However, it is important to note that the actual prepayment rate may vary from the estimated CPR.


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    Credit Rating Agency - a party that forms an opinion on the likelihood that Debt Securities will be repaid in a timely fashion. CRAs are licenced by ASIC. The rating assigned to a security by a CRA will affect the price of the security and the yield that investors receive.


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    CDS – A synthetic structure whereby the buyer of the CDS makes a series of payments to the Seller and, in exchange, the Seller of the CDS will compensate the buyer in the event of a Loan Default (for a Loan that is referenced in the CDS). Compensation for Loan Default is usually the Face Value of the Loan.


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    Refers to the features, facilities or rights within the transaction, intended to protect investors from losses with respect to securitised cash flows. Credit enhancement aims to mitigate Credit Risk within the transaction, credit enhancement can be in the form of External Credit Enhancement or Internal Credit Enhancement. It is also sometimes categorised as being either hard credit support (in place from the time the transaction closes) or soft credit support (may be partially in place at the time the transaction closes, but may build up over the life of the transaction).


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    Credit history is a record of a borrower's past borrowing and repayment behavior. It is used by lenders to assess the creditworthiness of a borrower and to determine whether to lend money to them. In the context of securitisation, credit history is important because it is used to assess the risk of the underlying assets. The better the credit history of the borrowers, the lower the risk of the underlying assets and the securitisation.


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    Credit rating is an assessment of the creditworthiness of an entity, such as a company, a government, or a securitisation. Credit ratings are assigned by credit rating agencies, which are companies that specialize in assessing credit risk.


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    CRA - a party that forms an opinion on the likelihood that Debt Securities will be repaid in a timely fashion. CRAs are licenced by ASIC.


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    Credit reports are typically obtained from credit reporting agencies, such as Equifax, Experian, and TransUnion. These agencies collect information about people's and organisations' credit history from lenders and other sources. In the context of securitisations, credit reports are important because they provide information about the underlying assets that are being securitised. This information can be used to assess the risk of the securities that are being issued.
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    Credit reports are typically obtained from credit reporting agencies, such as Equifax, Experian, and TransUnion. These agencies collect information about people's and organisations' credit history from lenders and other sources.


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    Credit support is a measure taken to reduce the risk of default on a loan or other financial asset. In the context of securitisations, credit support is typically used to increase the credit rating of the securities that are issued to investors.


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    A contract whereby a party swaps Principal and/or Interest payments in one currency for another currency at a predetermined date and rate, in order to mitigate currency risk within a transaction.
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    Outstanding amount of the Receivable. The current Loanbalance should include all due and unpaid Principal, Interest, any penalty Interest, as well as other fees and costs Charged to the Receivable balance.


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    A unique, nine-digit identification number permanently assigned by the Committee on Uniform Securities Identification Procedures to each publicly traded Debt Security at the time of issuance. If the Debt Security is in physical form, the CUSIP number is printed on its face.


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    A custodian is a financial institution that is responsible for holding and safekeeping securities on behalf of investors. Custodians typically have a high level of security and operational controls, which helps to protect investors' assets. In the context of securitisation, custodians play an important role in the securitisation process.


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    A cut-off date is the date by which certain events must occur in order for an asset to be included in a securitisation. For example, the cut-off date might be the date on which a loan is originated or the date on which a mortgage is closed. The cut-off date is important because it helps to ensure that the underlying assets in a securitisation are homogeneous. This is important because it allows investors to assess the risk of the securitisation more accurately.


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    d

    The number of days that a Receivable has been in Arrears. This is typically based on Scheduled Balance Arrears Methodology or Missed Payments Arrears Methodology for pools of Mortgage Loans, or such other methodology as determined by the Servicer. Refer also to Arrears. Days in arrears is often refered to as DIA.
     


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    A debit card facility is a type of securitisation that is backed by debit card receivables. Debit card receivables are the payments that are made by consumers when they use their debit cards to purchase goods or services. Debit card facilities are typically structured as revolving credit facilities, which means that borrowers can draw down on the facility as needed and repay it over time. The interest rate on a debit card facility is typically based on the prime rate plus a margin.


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    Debt is the underlying asset that is being securitised. Debt can be in the form of mortgages, loans, credit card receivables, or other types of debt. The debt that is securitised is typically pooled together and then divided into tranches. The tranches are different levels of risk, with the senior tranches being the safest and the subordinated tranches being the riskiest.


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    A written promise to pay a stipulated sum of money to a specified party under conditions mutually agreed upon and secured by Collateral. Throughout this glossary, Bonds, notes, and any other forms of securitised Debt issuance, are referred to as Debt Securities.


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    Deferred Establishment Fee –a fee which is now banned in Australia, which was previously charged if a Mortgage Loan paid out within a set period of time after the Loan settled (usually any time up to 4 years). In 2011 the NCCP regulations were amended to include a ban on DEFs and certain other exit fees relating to credit contracts secured over residential property. It should be noted that DEFs can still be charged on Loans secured over commercial property.


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    Failure to abide by the terms of a Receivable agreement, resulting in a failure to make Receivable payments when due. Defaulting on the Receivable may result in the Receivable provider taking legal action to repossess the underlying physical Asset (e.g. mortgaged property or vehicle).


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    Default frequency is the percentage of borrowers in a securitisation that default on their loans. It is a measure of the risk of default in a securitisation. Default frequency is typically measured over a period of time, such as one year or five years. The default frequency for a securitisation can be calculated by dividing the number of borrowers who have defaulted by the total number of borrowers in the securitisation.


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    Deferred interest is interest that is not paid out to investors immediately but is instead paid out later, typically at the end of the securitisation. Deferred interest is typically used to cover the costs of setting up the securitisation or to provide a buffer against losses in the early years of the securitisation. Deferred interest is a common feature in securitisations, and it is typically disclosed in the securitisation's offering documents.


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    A deposit bond is a type of securitisation that is backed by deposits. Deposits are funds that are held by a financial institution on behalf of its customers. Deposit bonds are typically structured as senior tranches, which means that they have the highest priority claim on the cash flows from the underlying deposits. This makes deposit bonds a relatively safe investment, as investors are unlikely to lose money if the underlying deposits default.


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    The date on which payments to investors are calculated by the Manager.


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    A reduction in the Receivable balance, due to items other than cash payment or Default — for example, a return of merchandise relating to a trade Receivable.


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    Where the lender debits (deducts) a payment from client’s bank, credit union or building society account.


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    Solicitors’ incidental costs involved when dealing with client on behalf of the lender, e.g. searches, certificates and pest reports.


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    An administration fee to cover the costs incurred in finalising a Loan account.


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    A document signed by the lender and given to the Obligor when a Mortgage Loan has been repaid in full.


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    A Discount to Face Value indicates a Debt Security is sold or available for sale at a price below Face Value,


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    Debt service ratio which measures the ratio of cash available for servicing Debt, to the amount of Interest, Principal and other payments payable.


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    A provision in a Mortgage or deed of Trust enabling the lender to demand instant payment of the balance of the Mortgage when the Mortgagor sells the home.


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    Describes the process whereby the level of Credit Enhancement in a Securitisation is resized on each Payment Date during the Revolving Period, usually based on a rolling average basis.


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    e

    The repayment of a Receivable in full by the Obligor before the end of the Receivable Term.


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    An event, as defined in the transaction documents, that could trigger an immediate end to the Revolving Period or Substitution Period to facilitate the early repayment of investor Principal.


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    A variable Interest rate translated into the rate that would be paid if the Interest was compounded on a semi-annual basis.


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    The criteria used by the Originator to select Receivables for transfer to a SPV.


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    Any kind of claim against property, such as Mortgages, Leases, easements or restrictions.


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    An assignment or transfer of rights in the interests in the Receivables, rather than full legal ownership. The equitable owner benefits from owning an Asset, even if the Asset’s Title of ownership is in the name of another party. Equitable assignment is accompanied by authority, to perfect or protect that equitable interest in certain situations (Title Perfection events). Also referred to as Beneficial Ownership / Beneficial Assignment / Beneficial Title.


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    A homeowner’s financial Interest in a property. Equity is the difference between the price for which a home could be sold and the amount still owed on its Mortgage. Equity usually increases as the outstanding Principal of the Mortgage is reduced through regular payments. Market values and improvements to the property also affect equity. Equity can also refer to the First Loss Piece in a Securitisation structure.


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    Fees payable to a lender to cover the costs of setting up a Receivable.


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    Euro Interbank Offered Rate - a daily reference rate based on the averaged Interest rates at which Eurozone banks offer to lend unsecured funds to other banks in the euro wholesale money market.


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    A provider of settlement services for Debt Securities, equities, funds and derivatives.


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    EOD - specified contractual event that when triggered will result in the lender/Secured Creditors calling for the outstanding amount of the Receivable/Debt Security from the Obligor/Issuer respectively. One of the key EODs in a Securitisation is a failure by the Issuer to make a payment to a Secured Creditor (e.g. a Coupon payment) as and when due (subject to a grace period of around 2 days).
    Following an EOD, the Waterfall used to determine payments is the “post-event of default” Waterfall (as opposed to the “pre-event of default” Waterfall).


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    Excess income available after Coupon payments and expenses due to Secured Creditors are paid. Excess spread is subsequently applied to Principal Charge-offs or losses which exist at that time. Any remaining excess spread may then be paid into a Reserve Account and used as a Credit Enhancement, or it may be released to another party (the Residual Income Unitholder).


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    Traded via an exchange compared to over-the-counter.


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    Penalties Charged by the lender when a Receivable is paid off before the end of its Term. Exit fees generally apply to fixed Interest rate Receivables.


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    The date as of which Debt Securities are expected to be repaid in full, based on a specified assumption regarding the rate at which the underlying Receivables will be repaid or refinanced.


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    A person who is named in an Offer Document as having prepared or certified any part of the Offer Document, or as having prepared or certified any report or valuation for use in connection with that Offer Document.


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    Risk that Prepayments will be slower than the assumed rate causing later-than-expected return of Principal.


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    External credit enhancement (ECE) is a financial instrument that is used to improve the credit rating of a securitization transaction. ECE can take a number of forms.
     


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    f

    The term "face value" in relation to securitisation refers to the nominal amount of a security, which is the amount that is printed on the face of the security
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    The most junior Class in a Securitisation that provides support to the pool of Receivables such that any losses are applied firstly to this Class of Debt Securities.


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    The hypothetical price that a willing buyer and Seller will agree upon, when they are acting freely, carefully and with complete knowledge of the situation.


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    Effectively switches a Pro-rata Pay cash flow allocation to a Sequential Pay cash flow allocation, usually upon a breach of a transaction performance trigger.


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    This can refer to the Interest rate on the underlying Receivables, or on the Debt Securities issued. The rate of Interest does not change for the Term of the Receivable or Debt Security.


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    This can refer to the Interest rate on the underlying Receivables, or on the Debt Securities issued. The rate of Interest is variable or adjustable for the Term of the Receivable or Debt Security issue, referenced against a market reference rate, e.g. BBSW. Also referred to as Variable-rate, particularly when in reference to a Mortgage Loan.


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    Postponing some or all Loan payments when an Obligor is in Arrears.


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    Legal process by which an Obligor in Default under the terms of a Mortgage ceases to have an Interest in the Mortgaged property. This usually involves a forced sale of the property with the proceeds of the sale being used to reduce or clear the Mortgage Debt.


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    Financial Ombudsman Service. FOS independently resolves disputes between consumers — including some small businesses — and member financial services providers in Australia. Dispute resolution covers financial services disputes including credit and Loans.


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    The dwelling and the land on which it stands is owned by the owner until they choose to sell it.


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    A Receivable in which the Principal and Interest will be repaid fully through regular instalments by the time the Receivable’s Term ends.
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    A Loan in which the Obligor extends the amount of the Mortgage Loan.


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    g

    Insurance protecting against loss to property caused by, for example, fire, some natural causes and vandalism etc. depending upon the terms of the policy.


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    Guaranteed Investment Contract - a deposit account provided by an ADI that guarantees a minimum rate of return. Such contracts help to mitigate Reinvestment Risk.


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    The balance of Receivables that have Defaulted, including the Principal balance and any capitalised Interest.


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    GIC - a deposit account provided by an ADI that guarantees a minimum rate of return. Such contracts help to mitigate Reinvestment Risk.


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    h

    An initial, below-market Interest rate offered on Mortgage Loans over the first few years. After the initial time period, the permanent rate takes effect. Also referred to as a teaser rate or buy-down.


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    i

    International Accounting Standards Board – sets standards for IFRS.


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    International Financial Reporting Standards. The IFRS Foundation is an independent organisation aiming to develop understandable, enforceable, globally accepted IFRS’s.


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    An Offer Document promoting the sale of Debt Securities to institutional investors. Also known as an Offering Circular.


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    In a Securitisation, the SPV is required to be insolvency-remote. Receivables are transferred from the Originator to the SPV, and claims of the Originator’s or Servicer’s creditors cannot be made against the Receivables underlying the Securitisation. It also means that the SPV itself is unlikely to become Insolvent should the Originator become Insolvent.


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    The regular periodic payment that an Obligor agrees to make to the lender.


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    Amount Charged for borrowing money, expressed as a percentage.


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    IO - a Receivable requiring the Obligor to make Interest payments but not Principal payments.


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    An agreement between two parties to switch payments of differing Interest rates for a certain period.


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    IO Strip - a Debt Security whose entitlements relate specifically to excess Interest Margin in a transaction. The Debt Security does not have a Principal balance, and Interest payments are calculated on a notional balance which may be fixed, or change over time.


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    Structural mechanisms built into a Securitisation to improve the credit quality of Debt Securities issued. Examples include Subordination, Excess Spread trap, and Overcollateralisation.


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    International Organization of Securities Commissions. IOSCO is an association of organisations that regulate the world’s Debt Securities and futures markets. Members are typically the Securities Commission or the main financial regulator from each country. The Australian member is ASIC. IOSCO aims to develop, implement and promote adherence to internationally recognised and consistent standards of regulation, oversight and enforcement in order to protect investors and promote investor confidence, maintain fair, efficient and transparent markets, and address systemic risks.


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    International Securities Identification Number. The standard coding for internationally traded Debt Securities which is used by most countries.


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    International Swaps and Derivatives Association. ISDA is also used to generally refer to the documentation that governs a Swap.


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    The total Principal balance of a Class of Debt Securities, excluding Charge-offs and Reimbursements.


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    A property purchased for the sole purpose of earning a return on the investment, either in the form of rent or capital gain. The owner does not live in the property.


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    Interest Only - a Receivable requiring the Obligor to make Interest payments but not Principal payments.


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    The date on which a Debt Security is deemed to be issued or originated.


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    An entity which issues and is obligated to pay amounts due on Debt Securities.


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    In Australia, the Trustee (as Trustee for the Trust) is often the Issuer. The full legal name of the transaction is “ABC Trustee as Trustee for XYZ Trust”. The issuer trustee issues the Debt Securities and effectively acts in Trust for the Secured Creditors of the SPV.


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    j

    Jointly responsible for the design, structure and placement of new issue of Debt Securities with investors.


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    The geographical area to which practical authority applies to deal with legal matters.


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    l

    The party that usually structures and arranges the transaction offering on behalf of the Sponsor, and manages the allocations of Debt Securities to investors. Also referred to as Arranger or bookrunner.


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    A written agreement between the Asset owner and a lessee that stipulates the payment and conditions under which the lessee may possess the Asset for a specified period of time.


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    LMI - an insurance policy on an individual Mortgage Loan, or pool of Mortgage Loans, to protect the lender from any shortfall in the event of a Default by the underlying Obligor(s) and shortfall on realisation of the properties securing those Loans. LMI is required primarily for Obligor with a deposit of less than 20% of the property’s purchase price.


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    Lenders’ Mortgage Insurance. An insurance policy on an individual Mortgage Loan, or pool of Mortgage Loans, to protect the lender from any shortfall in the event of a Default by the underlying Obligor(s) and shortfall on realisation of the properties securing those Loans. LMI is required primarily for Obligors with a deposit of less than 20% of the property’s purchase price.


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    An institution’s statement of its basic lending philosophy, including standards, guidelines and limitations that are to be observed and adhered to in the process of deciding whether to grant a Receivable contract. The policy must adhere to applicable law and regulations.


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    An agreement between a bank and another party under which the bank agrees to unconditionally and irrevocably make funds available to or upon the order of the other party upon receiving notification.
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    A Debt or an obligation.


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    A Security Interest or Charge over property to ensure repayment of Debt.


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    A pre-established Loan authorisation with a specified borrowing limit extended by an Originator. A Line of Credit allows Obligors to obtain a number of Loans without re-applying each time as long as the total of borrowed funds does not exceed the credit limit.


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    A form of support that mitigates the timing mismatch of cash flows (income from Receivables and Waterfall expenses) of a structured deal. Examples include liquidity reserves, Liquidity Facilities, Principal Draws and Timely Payment Cover.


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    A contract whereby the liquidity facility provider lends cash to a SPV to compensate for any timing mismatches between the securitised Receivables and the associated Debt Securities. In ABCP, the cash is used to redeem maturing paper as required.


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    A contract under which the Obligor owes Principal and Interest on its Debt to the lender. Within a Securitisation, the loan is an Asset of the SPV. Examples typically include Mortgage loans, auto loans, and other personal or corporate loans.

    For the purposes of this glossary, the broader “Receivable” term (which covers loans, Leases, etc) is used.


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    LTV Ratio or LVR - a percentage calculated by dividing the amount borrowed by the value of the property used as Security for the Loan.


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    Typically a US feature, whereby Collections are directed to a special account called a ‘lock-box’ so as to reduce Commingling Risk.


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    London Interbank Offered Rate - average Interest rate that leading banks in London Charge when lending to other banks.


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    A Debt Security with a maturity of more than one year.


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    With respect to a sample of Receivables, the loss curve is a graphical representation of the pattern of losses experienced over time, based on plotting the Defaults or losses that occur over the life of all Receivables in the sample, usually depicting the cumulative loss rate over the Term of the Receivable pool.


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    A Loan where the source and the affordability of the Mortgage applied for is accepted without full provision of supporting documentation and verification by the Originator.


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    m

    Entity that is responsible for the day-to-day operations of the Securitisation transaction, including determining the cash flows generated from the Receivables and the calculation of payments and fees due to the relevant counterparties and investors of the transaction. Also referred to as Trust Manager.


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    Typically, the credit spread set on the Pricing Date of the Debt Security. It is the Basis Point spread added to the Coupon Reference Index to determine the Interest payable on a Floating-rate Debt Security.


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    The accounting process to adjust the value of an Asset to reflect the current market value rather than the accounting book value. Mark to market values are typically obtained for financial instruments quoted on an exchange or valued using an industry-accepted valuation model.


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    MVD – In relation to Credit Rating Agency stresses and assumptions, MVD refers to the percentage by which it is assumed property valuations will decline at particular stress levels, e.g. 45% MVD at AAA rating level.


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    Market Value Decline – in relation to Credit Rating Agency stresses and assumptions, MVD refers to the percentage by which it is assumed property valuations will decline at particular stress levels, e.g. 45% MVD at AAA rating level.


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    The document provides for the creation of a number of Trusts and sets out the powers and responsibilities of the Trustee and the Manager.


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    Funding an Asset with a Liability that has the same repayment profile.


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    A clause or provision that is included in Securitisation transaction documents that enables one transaction party to remedies upon certain actions (or failures to act) by another transaction party.


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    The date on which the Principal balance of a Receivable, Debt Security or other financial instrument becomes due and payable or the agreement is renewed. It is the date by which a specific Class of Debt Securities must be repaid in order not to be in Default. In relation to a Securitisation transaction, it is also the last possible date on which an Asset (Receivable or other Asset, such as cash account) within the pool can mature.


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    Medium-Term note – Debt Security with a Tenor of 1 to 3 years.


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    A Subordinated Debt Security, which therefore ranks below a senior-ranking Debt Security, but ranks above the most Subordinated Debt Security in the structure (generally the unrated equity or First Loss Piece).


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    A Term used to describe investors that sit (in size and sophistication) between institutional/wholesale investors, and retail investors (mums and dads). Examples of Middle Market Investors include local councils, high net worth individuals, charities, universities and churches.


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    Under this approach, a Mortgage Loan will be Classified as being in Arrears if an Obligor is one or more scheduled payments past due. A Mortgage Loan will be treated as in Arrears if a payment is missed, even though the Current Loan Balance is less than the Scheduled Loan Balance.


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    A form of Security for a Loan usually taken over Real Estate. The lender, the Mortgagee has the right to take (repossess) the Real Estate if the Mortgagor fails to repay the Loan.


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    Mortgage & Finance Association of Australia


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    Mortgage-backed security. Refer to RMBS and CMBS.


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    The party to whom a Mortgage is granted, generally the Originator for an Equitable Title program and the Trustee for a Legal Title program.
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    The owner of Real Estate who pledges the property as Security for the repayment of a Debt; the Borrower, the Obligor.


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    n

    National Consumer Credit Protection – Regulations under the National Consumer Credit Protection Act 2009 (Cth) and related legislation which is designed to protect the rights of the individual (personal consumer) by ensuring lenders all adhere to the same rules when providing personal, domestic or household credit.


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    Gross Defaults less Recoveries received for those Receivables written off.


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    A Mortgage Loan which fails to meet traditional lending criteria, e.g. the Obligor has a poor credit history. Historically, the “traditional lending criteria” in Australia is that which was required by the Lenders Mortgage Insurers. The rate Charged on a Non-conforming Loan is higher than the prime or standard rate. Non-conforming Loans are also sometimes referred to as specialist Loans or Sub-prime Loans.


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    Receivables in Default or close to Default, i.e. the Obligor has not met the terms of the Receivable contract, e.g. not paid on time or in full. The Receivable becomes non-performing at the point it is written off.


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    A person or corporation that does not meet the criteria for resident as set, for example, by the Australian Taxation Office.


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    Formal notice given to an Obligor that a Default has taken place, and of possible legal action.


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    o

    The person or Debtor liable to the Originator or Seller in respect of Receivables. Also referred to as a Borrower. For consistency, the term Obligor is used throughout this glossary, although the term Obligor is more commonly used in reference to a non-Mortgage Loan, such as a trade Receivable or an auto or equipment Loan. Pronounced ‘ob / lee / gor’.


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    An accounting treatment whereby an Originator is enTitled to remove securitised Assets from its own balance sheet.


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    A document promoting a financial product.


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    An Offer Document promoting the sale of Debt Securities, similar to a prospectus. Also known as an Information Memorandum.


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    The process of preparing, submitting and evaluating a Receivable application; generally includes a credit check, verification of employment and a property appraisal.


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    Over-the-counter trading, usually conducted via phone or computer networks.


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    A capital structure in which Assets exceed Liabilities. It is used as a form of Credit Enhancement in certain Securitisations.


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    Property occupied by the owner as opposed to a tenant or renter.


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    p

    A structure whereby Principal payments on Debt Securities are made on the basis of Principal Collections on the underlying Assets, i.e. all Principal payments collected on the underlying Assets are passed directly through to investors to repay Debt Securities.


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    An entity responsible for making the payment of Interest and Principal to investors on behalf of the Issuer.


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    The date on which payment of Principal or Coupon to investors of a Class of Debt Securities is scheduled to occur.


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    Refers to the perfection of Legal Title, which enables the perfector (the SPV) to become the full legal and Beneficial Owner rather than just the Beneficial Owner of the Receivables. The Issuer may be required to perfect Title if certain events outlined in the documentation occur (Title perfection events). When Assets are originally only beneficially assigned, that assignment is accompanied by authority (a Power of Attorney) to perfect or protect that equitable Interest in the case of a Title perfection event taking place.


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    Any form of property other than land or buildings and fixtures which form part of that land. It can include tangibles such cars, boats, machinery, crops; as well as intangibles such as shares, intellectual property and contract rights


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    Personal Property Securities Act (2009). This is a federal government act, and PPS reforms took place to bring together the different Commonwealth, State and Territory laws and registers under one national system. The PPSA accompanies an online PPS Register.


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    Outstanding Principal balance of all Assets divided by the original Principal balance of the Assets at Cut-off Date.


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    The assembly of Receivables by an Originator as the basis for issuance of an ABS.


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    Where a new property can be used as Security for an existing Loan, i.e. when the Loan is transferred to a new Security property without needing to repay the Loan, reapply or restructure.


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    A written authorisation to another person, or persons, to perform certain acts for the signer, as if they were the signer.


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    Pre-funding occurs when some investor funds are set aside at the start of the transaction to enable the Issuer to gradually increase the value of Receivables underlying the Securitisation, within a specified period of time (called the Pre-funding period). The Pre-funding period is typically around 3 to 6 months, and enables the Originator to originate more Receivables and include then in the Securitisation vehicle, provided they are of similar characteristics to the existing pool. Pre-funding is also referred to as Ramp-up.


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    Any amount paid to reduce the Principal balance of the Receivable before the due date or any amount paid in addition to the minimum repayment. Receivable Prepayments create uncertainty as to the average life of a pool of Receivables and therefore the average life of Debt Securities issued by a Securitisation vehicle.


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    A fee assessed by a lender on an Obligor who repays all or part of the Principal of a Receivable before it is due. The prepayment penalty compensates the lender for the loss of Interest that would have been earned had the Receivable remained in effect for its full Term.


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    The rate at which the Receivables in discrete pools are reported to have been repaid, expressed as a percentage of the remaining Principal balance of the pool. Different Receivables may demonstrate different prepayment behaviours, and different market conditions (e.g. Interest rates) may impact prepayment speeds.
     
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    Risk that the Receivables underlying the Debt Security are repaid faster or slower than expected.


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    Date on which price, yield or Margin is determined.


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    A Mortgage Loan which meets traditional lending criteria, whereby the underwriting process includes full income verification and the Obligor has a sound credit history. Historically, the “traditional lending criteria” in Australia is that which was required by the Lenders Mortgage Insurers, and hence a significant number of prime Loans in Australian Securitisations are Mortgage insured.


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    Amount borrowed or owed.


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    P&I - a Loan in which both the Principal and the Interest are paid during the Term of the Loan.


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    Principal & Interest - a Loan in which both the Principal and the Interest are paid during the Term of the Loan.


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    Principal Collections used to pay required Trust expenses and Coupon payments, due to insufficient income Collections. This is a form of Liquidity Enhancement.


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    Also referred to as Commercial Paper or CP, it is a short-Term, unsecured Debt instrument with a fixed maturity where the Issuer promises to pay a determinate sum of money to the buyer, under specific terms. Since it is not backed by Collateral, only firms with strong Credit Ratings from a Credit Rating Agency will be able to sell a promissory note at a cost-effective price. A promissory note is usually sold at a Discount to Face Value, and carries higher Interest repayment rates than Bonds.


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    Serial Pay - Principal receipts are allocated to senior and subordinate Classes of Debt Securities according to their original percentages.


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    APRA Prudential Standards – these standards form part of the framework under which APRA supervises and regulates ADIs. One of the key standards that impacts Securitisation by ADIs is APS 120 (Securitisation).


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    r

    Ramp-up occurs when some investor funds are set aside at the start of the transaction to enable the Issuer to gradually increase the value of Receivables underlying the Securitisation, within a specified period of time (called the ramp-up period). The ramp-up period is typically around 3 to 6 months, and enables the Originator to originate more Receivables and include then in the Securitisation vehicle, provided they are of similar characteristics to the existing pool. Ramp-up is also referred to as Pre-funding.
     


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    A period that may follow the Revolving Period of a transaction, during which the outstanding balance of the related Debt Securities is repaid as quickly as possible from Collections received. If a performance trigger event occurs, rapid amortisation will be likely, to return Principal to investors as quickly as possible.


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    Land and all physical property on, below or attached to the land. Houses, sewers, trees and fences are all Real Estate.


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    Investors that are investing cash, rather than investing in order to trade or use the Debt Securities for some other purpose (e.g. arbitrage, liquidity management). Real Money Investors include superannuation funds, fund managers and insurance companies.


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    A financial contract under which the Obligor owes Principal and Interest on its Debt to the lender. Within a Securitisation, the Receivable is an Asset of the SPV. Examples typically include Mortgage Loans, other personal or corporate Loans, Leases, and hire purchases.


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    The ability of a lender/Secured Creditor to demand payment from an Obligor/Debt Issuer if the Collateral is insufficient to pay the Debt in full. In the case of securitised issues, Recourse is limited to the Assets of the Issuer/SPV, and does not extend to other Assets of the Originator.


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    Recoveries include proceeds from the sale of the property or physical Asset underlying the Receivable, as well as any other recoveries (e.g. LMI) received prior to the Receivable being written off.


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    Redemption occurs when the Debt Securities can be redeemed (effectively bought back by the Issuer/Trustee) prior to the Legal Maturity Date. This may be at the option of one of the transaction parties (Call Option), or upon certain events being triggered.


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    A feature of some variable rate Mortgage Loans whereby you can make extra repayments, and then draw on these funds if required. The Redraw available to the Obligor is Scheduled Balance less Current Balance.


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    To pay off a Debt and arrange for a new Debt, sometimes with a different lender.


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    An ABS issue registered in the US with the Securities Exchange Commission. Regulation AB is a set of rules and amendments that address the registration, disclosure and reporting requirements for ABS. Investors in Reg AB issues are domiciled in many jurisdictions, including the US.


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    Debt Securities offered to European and Asian investors (and US off-shore investors). These issues are settled through Euroclear or Clearstream and listed on a European exchange. They are usually denominated in USD or Euros.


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    Funds used to reinstate Charge-offs on Debt Securities.


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    The risk that the yield on an investment will be adversely affected if the Interest rate at which interim cash flows can be reinvested is lower than expected.


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    Statements generally made by the Originator or Seller in respect of the Receivables. The transaction documentation usually provides for certain remedies if representations and warranties are breached


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    A funded account available for use by an SPV for one or more specified purposes. A reserve account is often used as a form of Credit Enhancement or Liquidity Enhancement. Usually reserve accounts are at least partially funded at the start of the related transactions, but many are designed to be built up over time using the excess cash flow that is available after making payments to Secured Creditors.


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    RMBS - a Debt Security whose cash flow is backed by the Principal and Interest payments from a specified pool of Mortgage Loans that are secured by Mortgages over residential property.


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    Residential Mortgage-backed Security – Debt Security whose cash flow is backed by the Principal and Interest payments from a specified pool of Mortgage Loans that are secured by Mortgages over residential property.


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    The unitholder is entitled to any cash flow from the Assets that remains after the obligations to all other Secured Creditors have been met.


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    The estimated value of Personal Property at the end of a Lease period. Lease payments are based on the difference between the property’s sale price and residual value. If the property is not worth the estimated residual value at the end of the Lease, then the Obligor may have to make up the price difference by making a residual payment. This concept generally relates to Leases over vehicles or equipment.


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    Receivables where the contract payment terms have been restructured.


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    Principal receipts from the underlying Receivables are used to reinvest in additional Receivables rather than passing through to investors. This is usually used to finance short-dated Receivables such as trade Receivables. The ‘Revolving Period’ is at the start of the transaction. The ‘amortisation period’ can commence on a predetermined date, or may start early if certain performance provisions are triggered.


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    In Securitisation, this refers to the transfer of Receivables to an SPV so the Assets are protected and are independent of the Originator and are thus Bankruptcy-remote / Insolvency-remote.


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    In Securitisation it refers to Originators and/or securitisers retaining an unhedged position either in the Debt Securities issued or in the underlying Receivable pool from which the securitised Receivables were drawn. Sometimes referred to as skin in the game.


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    s

    Under this approach, a Mortgage Loan is only classified as being in Arrears in the Current Loan Balance exceeds the Scheduled Loan Balance, irrespective of whether an Obligor has any scheduled payments past due.


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    The amount of Interest owed at the end of the current period.


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    The expected Principal balance of the Loan assuming only contractual repayments have been made when due (i.e. excluding any Prepayments that may have been made).


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    The amount of Principal scheduled to be repaid at the end of the current period.


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    A Mortgage that has been in effect at least [one] year and on which Principal and Interest payments are being made on time.


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    The age of the Receivable or Debt Security.


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    A Mortgage Loan granted when there is already one other Mortgage registered against the property. In case of Default, the first Mortgage is paid from the proceeds of the sale of the property, before the second Mortgage is paid.


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    A creditor with the benefit of a Security Interest over some or all of the Assets of the SPV. If an Event of Default occurs, the Secured Creditor can enforce Security against the Assets of the SPV. In a Securitisation, Secured Creditors generally include investors, hedge providers, liquidity providers, etc.


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    The process of converting cash flows from Assets/Receivables into Debt Securities that are limited in their Recourse to the underlying Assets/Receivables rather than the company that originated those Assets/Receivables.


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    A written promise to pay a stipulated sum of money to a specified party under conditions mutually agreed upon and secured by Collateral. Throughout this glossary, Bonds, notes, and any other forms of securitised Debt issuance, are referred to as Debt Securities.
    The term Security also relates to the property that will be pledged as Collateral for a Mortgage Loan.


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    Under this deed, the SPV grants a Charge in favour of the Security Trustee for the benefit of the investors and facility providers, and sets out the Waterfall in the event of a Default by the SPV.


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    The entity that holds Assets in Trust for Secured Creditors in a financial transaction such as a Securitisation. The security trustee has a Charge over the Trust Assets, and may enforce the Charge if an Event of Default occurs.


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    The Issuer issues separate series of Debt Securities, which are not linked to each other and cannot cause cross-Default.


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    The party that sells Receivables to the SPV. The Seller may have originated the Receivables itself (in which case it is also the Originator), or it may have purchased the Receivables from another party prior to securitising them.


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    Principal receipts are allocated to the most senior Class of Debt Securities and only when that Class is repaid in full are allocated to the next most senior Class of Debt Securities.


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    Pro-rata Pay - Principal receipts are allocated to senior and subordinate Classes of Debt Securities according to their original percentages.


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    Ability of an Obligor to make and meet repayments on a Receivable, based on the Obligor’s expenses and income.


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    The entity responsible for administering securitised Receivables. This will include collection of Principal and Interest on the Receivables, and distribution of those funds to the Trustee.


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    The amount withheld from Interest payments made on the Receivables which is retained by the Servicer as payment for servicing the Receivables.


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    This can refer to the settlement of a Receivable or the issuing of Debt Securities. It is the date on which:

    and the new owner/investor takes possession. It is at this time that the Obligor/Issuer takes on the Receivable or Debt Security obligation and pays all closing costs. In the case of an Asset sale, it is also the date that the Obligor receives Title from the Seller. Also referred to as Closing Date.


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    A registration of a new issue which can be prepared several years in advance, so that the issue can be offered quickly as soon as funds are needed or market conditions are favourable. A single registration document can be filed by a company that permits the issuance of multiple Debt Securities.


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    A Debt Security with a maturity of one year or less.


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    Special Purpose Company -  an Insolvency-remote company created solely to hold Assets on behalf of Secured Creditors, and issue Debt Securities supported by securitised cash flows. Also referred to as SPV.


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    SPC - an Insolvency-remote Trust or company/entity created solely to hold Assets on behalf of Secured Creditors, and issue Debt Securities supported by securitised cash flows. Also referred to as SPV.


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    An Insolvency-remote entity created solely to hold Assets on behalf of Secured Creditors, and issue Debt Securities supported by securitised cash flows. Also referred to as SPV.
     


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    SPV – an Insolvency-remote Trust or company/entity created solely to hold Assets on behalf of Secured Creditors, and issue Debt Securities supported by securitised cash flows.


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    A combination of Loan types forming one Loan, such as a Loan which has a Fixed-rate portion and a Variable-rate portion. Each of the Loans is usually secured by the same properties.


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    Entity that organises a Securitisation transaction by selling or transferring Receivables that it originated or acquired.


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    A state government tax imposed on legal documents and commercial transactions. For the purchase of Real Estate, it is calculated according to the property value. It also applies to the amount of the Mortgage.


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    The total Principal balance of a Class of Debt Securities after deducting Charge-offs and adding Reimbursements.


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    A pool of Receivables made up of Receivables originated only during a finite period of time, usually a month or a quarter. Analysing Receivables pools in static pools provides additional insights into how a securitised pool may perform over time, for instance its repayment profile and Loss Curve.


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    Principal Collections can be passed through to more subordinated Classes of Debt Securities (even if senior Debt Securities have not been repaid in full), provided certain “step-down triggers” are being met. Such step-down triggers often include the passing of a period of time, and the maintenance of Arrears below certain levels.


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    The date upon which there is to be an increase in the Coupon payable.


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    The increased Interest rate (above the original Margin set) that Issuers agree to pay investors.


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    The Base Case Loss Assumption adjusted to reflect a stress multiple.


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    Debt Security which ranks behind other Debt Securities in repayment of Principal, and is allocated losses before senior Debt Securities.


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    A form of Credit Enhancement where several Classes of Debt Securities are issued, each with different Waterfall rankings. Subordination refers to the Debt Securities which rank below a certain Debt Security, thereby providing it with Credit Enhancement equal to the Face Value of those Subordinated Debt Securities Losses and shortfalls are allocated to the most Subordinated Debt Securities first. Subordination is also referred to as credit tranching.


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    A Receivable which fails to meet traditional lending criteria, e.g. the Obligor has a poor credit history. Historically, the “traditional lending criteria” in Australia relating to Mortgage Loans is that which was required by the Lenders Mortgage Insurers. The rate charged on a sub-prime Receivable is higher than the prime or standard rate. Sub-prime Receivables are also sometimes referred to as specialist or Non-conforming.


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    If an underlying Receivable is sold out of the pool because it doesn’t meet eligibility criteria, funds are used to reinvest in additional Receivables rather than passing through to investors. This is usually used to finance long-dated Receivables such as Mortgage Loans for up to 2 years at the start of the transaction (the “substitution” period).


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    A Debt Security with a high Credit Rating issued as part of a Securitisation structure that has another Class of Debt Securities with the same Credit Rating, but that ranks lower in the Waterfall.


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    An agreement by two parties used to limit market risk by exchanging sets of payments that are each based on a different risk basis, e.g. a fixed/floating Interest rate swap requires one party to pay fixed Interest rate payments and receive floating/variable Interest rate payments.


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    t

    A certificate attached to a Bond used by the investor to order new Coupons upon depletion.


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    The number of years until the maturity of Debt or repayment of a Receivable. Also referred to as Term.


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    The number of years until the maturity of Debt or repayment of a Receivable. Also referred to as Tenor.


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    An issue of Debt Securities to the capital markets whereby the Debt Securities have a specified maturity date and the pool is effectively a closed pool, i.e. further Assets cannot be added to the pool over time (this has some exceptions, e.g. term issues with Substitution or Ramp-up periods). A term issue may follow the build-up of Receivables on balance sheet, or in a Warehouse Facility.


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    The Manager is required to set the Interest rate on the Variable-rate Loans at a level that meets the obligations of the SPV.


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    TPC - insurance offered by Lenders’ Mortgage Insurers to cover missed Interest payments by Obligors for up to 24 months. A form of Liquidity Enhancement.


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    A legal document evidencing a person’s right to or ownership of a property.


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    The insurance that protects the Mortgage company, along with the homeowner, if an owner’s policy is purchased against losses resulting from problems with the Title of a property, or unknown liens (Charges) or other inconsistencies relating to the Title of the property.


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    Refers to the perfection of Legal Title, which enables the perfector (the SPV) to become the full legal and beneficial owner rather than just the beneficial owner of the Receivables. The Issuer may be required to perfect Title if certain events outlined in the documentation occur (Title perfection events). When Assets are originally only beneficially assigned, that assignment is accompanied by authority (a Power of Attorney) to perfect or protect that equitable interest in the case of a Title perfection event taking place.


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    A Loan in which the Obligor extends the amount of credit secured. Top-up may also refer to a Substitution or Ramp-up of a Securitisation pool of Receivables.


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    System whereby ownership and all dealings on a property are detailed on the one document, i.e. a Certificate of Title or Deed of Grant. Under this system a Mortgage is a Charge or encumbrance on the Title. Registration is compulsory to effect legal transfer of an Interest in property and each time the property is sold, Mortgaged or a Mortgage discharged, the transaction is recorded on the Certificate of Title.


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    One of a series of Debt Securities secured by a single pool of Receivables. The tranches have different terms and conditions and rank in different orders in the payment Waterfall, leading to each tranche having varying levels of Credit Risk. Different tranches can be denominated in different currencies and have differing maturity dates. Also referred to as a Class.


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    The occurrence of an event which indicates that the financial condition of the Issuer or some other party associated with the transaction is deteriorating; typically, such events are defined in the transaction documents, as are the changes to the transaction structure and/or priority of payments that are mandated following the occurrence of such an event.


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    An actual sale, as distinct from a secured borrowing, so that the Receivables owned by the SPV are not consolidated with the Originator, Seller or Sponsor.


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    An arrangement whereby securitised Receivables and other Assets (such as Cash Reserves) are held in Trust by a Trustee with the intention that they be administered for the benefit of a beneficiary/Secured Creditors.


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    In Australia, a Securitisation structure generally has 2 trustees: the Issuer Trustee and the Security Trustee. The trustee is the entity that represents the interests of investors and other Secured Creditors, and holds Assets and/or a Charge over the Assets on behalf of investors and other Secured Creditors.


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    Uses excess spread to retire Debt Securities faster than scheduled. Builds Credit Enhancement by creating and increasing Overcollateralisation.


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    u

    Number of Loans in the pool before consolidating Split-Loans that are secured by the same properties.


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    The securitised Receivables acquired by the SPV, e.g. residential Mortgage Loans, credit card Loans and auto Loans.


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    The process of analysing a Receivable application to determine the amount of risk involved in writing the Receivable contract; it includes a review of the potential Obligor’s credit history and a judgment of the property or other physical Asset values.


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    v

    An estimate of the market value of a piece of Real Estate made by a competent professional (the valuer) who knows local property market and prices. Also known as an ‘appraisal’.


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    Also known as an ‘appraiser’, an individual qualified by education, training and experience to estimate the value of real property and personal property. Although some valuers work directly for Mortgage lenders, most are independent.


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    The rate of Interest is variable or adjustable for the Term of the Receivable, or Debt Security issue, referenced against a market reference rate, e.g. BBSW.


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    The company which records and holds credit information and credit Defaults. Was originally known as ‘CRAA’, and then BayCorp Advantage, and may be referred to as the ‘CRAA check’.


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    Refers to a portfolio of Receivables originated within a specified time period (usually refers to a calendar year, e.g. the 2006 vintage).


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    w

    An issue of Debt Securities, to a warehouse funder (typically a bank), under a warehouse facility structure, whereby the Originator has the ability to continue to add Receivables into the pool, to build the volume up to a size at which they can “term out” (i.e. do a Term Issue). The warehouse facility is subject to a number of conditions, including Eligibility Criteria around what type of Receivables can be funded by the Warehouse. The warehouse facility is usually for a Term of 1 year, at which point it may be rolled over for another year as required.


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    The waterfall, also called the “priority of payments” is set out in the transaction documents, and details the allocation of cash by the Trustee each Determination Date, in order of priority. There is generally an Interest waterfall, a Principal waterfall pre-Event of Default and a Principal waterfall post- Event of Default).


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    The average Interest rate for a group of Debt Securities, taken by multiplying the Coupon applicable to each Debt Security in the group by a fraction, the numerator of which is the outstanding Principal balance of the related Debt Security and the denominator of which is the outstanding Principal balance of the entire group of Debt Securities. An important concept in tranched Securitisation structures is that the weighted average cost of funds tends to increase over time, as the cheaper senior Debt Securities retire, leaving the more expensive subordinated Debt Securities outstanding.


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    Weighted Average Life – the average remaining Term to maturity of the underlying Receivables, weighted by remaining Principal balance. Also called WAM.


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    Weighted Average Maturity - the average remaining Term to maturity of the Receivables, weighted by remaining Principal balance. Also called WAL.


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    A tax that is withheld from income and passed on to a government.


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    A Debt that is unlikely to be repaid and is written off as a Default.


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    y

    The opposite of excess spread. Indicates that insufficient spread is available from the Assets to pay the SPV’s costs and the Interest portion of Debt service in full. A potential yield shortfall may be mitigated by the SPV having access to cash collateral in a Reserve Account. Cash flow analysis helps to identify potential yield shortfalls under various scenarios. This may be a particular risk in Pass-through structures, as the cheaper senior Debt is repaid, leaving the more expensive subordinated Debt outstanding.


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    Rate of return of a Debt Security, for example, if held until it matures, usually expressed as an annual percentage.


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