Representations and Warranties

Representations and warranties are statements made by one party to another party about the facts or circumstances relating to the securitisation transaction. In the context of securitisation, R&Ws are typically made by the sponsor of the securitisation to the investors. R&Ws are designed to protect investors from misrepresentations or omissions about the securitisation transaction.

There are a number of different types of R&Ws that can be made in a securitisation transaction, including:

  • Financial representations: These representations typically relate to the financial condition of the sponsor and the underlying assets.
  • Legal representations: These representations typically relate to the legal status of the securitisation transaction and the underlying assets.
  • Procedural representations: These representations typically relate to the compliance with applicable laws and regulations.

If a representation or warranty is found to be false or misleading, the investors may have a claim against the sponsor for breach of contract.

Here are some applications of R&Ws in securitisation:

  • Mortgage-backed securities: In a mortgage-backed security, the sponsor typically makes representations and warranties about the underlying mortgages, such as the timely payment of principal and interest.
  • Collateralized debt obligations: In a collateralized debt obligation, the sponsor typically makes representations and warranties about the underlying debt securities, such as the creditworthiness of the borrowers.

R&Ws are an important part of the securitisation process. They help to protect investors from misrepresentations or omissions about the securitisation transaction.