FAQs on the Eurosystem’s asset-backed securities purchase programme (ABSPP)
last update: 22 August 2016
This document sets out some questions and answers on the Eurosystem’s asset-backed securities purchase programme (ABSPP), announced on 4 September 2014. It complements the information contained in the ECB decision of 19 October 2014 (ECB/2014/45) and Technical Annex 1 of 2 October 2014.
What are the objectives of the ABSPP?
The ABSPP, together with the third covered bond purchase programme (CBPP3) and the public sector purchase programme (PSPP), is part of the ECB’s expanded asset purchase programme (APP). The ABSPP further enhances the transmission of monetary policy, facilitates credit provision to the euro area economy and generates positive spillovers to other markets. As a result, it eases the ECB’s monetary policy stance, contributing to a return of inflation rates to levels closer to 2%. The ABSPP also helps banks to diversify funding sources and stimulates the issuance of new securities. Asset-backed securities can help banks to fulfil their main role: providing credit to the real economy. For instance, securitising loans and selling them can provide banks with the necessary funds to provide new lending to the real economy.
Questions on bond eligibility
Q2.1: Where are the ABS eligibility criteria stated?
The eligibility criteria are stated in Decisions ECB/2014/45 and ECB/2015/31 on the ABSPP. The Eurosystem has also developed a set of high-level, non-binding and non-exhaustive guiding principles to illustrate the Eurosystem's preferences in relation to the asset-backed securities (ABSs) that it considers for purchase in the context of the ABSPP. However, the guiding principles are not intended to serve as eligibility criteria like those set out in Decision ECB/2014/45 and should not be construed as "pre-issuance advice". The Eurosystem retains full discretion to purchase or refrain from purchasing any ABS meeting the ABSPP’s eligibility criteria.
Q2.2: What are the maximum and minimum maturities of ABSs eligible for purchase under the ABSPP?
No binding maximum or minimum maturity has been defined for the programme.
Q2.3: What is the minimum or maximum issuance size of ABSs eligible for purchase under the ABSPP?
No minimum or maximum issuance size has been defined for the programme.
Q2.4: Is there a maximum share for purchases of an ABS under the ABSPP?
In general, ABSPP purchases are limited to a maximum of 70% of the outstanding nominal amount of a tranche of an ABS (with the same or fungible international securities identifying number (ISIN)). However, in the case of ABSs with underlying claims against obligors incorporated or resident in Greece or Cyprus, a corresponding limit of 30% per ISIN will be applied (as outlined in Articles 2(8) and 5(2) of Decision ECB/2014/45). Additionally, the Eurosystem retains full discretion in its decision to purchase or refrain from purchasing any ABS meeting the ABSPP’s eligibility criteria.
Q2.5: Do you also purchase mezzanine tranches?
The Eurosystem may purchase mezzanine tranches of ABSs, provided that those mezzanine tranches are subject to a guarantee complying with the criteria for guarantees in the Eurosystem collateral framework set out in Articles 114, 115, 117 and 118 of Part Four, Title IV of Guideline (EU) 2015/510 (ECB/2014/60). They must also be issued by a guarantor with a credit assessment in accordance with Article 83(c) of Guideline (EU) 2015/510 (ECB/2014/60) (as outlined in Article 2(9) of Decision ECB/2014/45). This means that the guarantee needs to be unconditional and irrevocable, payable on first demand, and cover principal, interest and any amounts due under the ABSs. In addition, the Eurosystem will conduct appropriate credit risk and due diligence procedures prior to the purchase of guaranteed mezzanine tranches of ABSs, in line with the procedures in place for all ABSs considered for purchase.
Q2.6: Do you also purchase equity tranches?
No, the Eurosystem may only purchase senior and guaranteed mezzanine tranches of those ABSs that fulfil the eligibility criteria described above.
Q.2.7: Does the ABSPP also purchase in the primary market?
Yes, the ABSPP is active in both the primary and secondary ABS markets. It is also able to purchase retained transactions, but only alongside other investors.
Q2.8: Are retained ABSs part of the purchasable universe?
Retained ABSs are in principle part of the purchasable universe if, like any other ABS, they fulfil the eligibility criteria. A fully retained ABS tranche can only be eligible for purchase under the ABSPP if at least one external investor without a close link to the originator also purchases part of the respective ABS tranche, either prior to or at the same time as the Eurosystem (as outlined in Article 2(7) of Decision ECB/2014/45).
Q2.9 Under the ABSPP, the Eurosystem will be able to buy up to 70% of an ABS per ISIN (or 30% in the case of Greece and Cyprus). In the case of the remaining 30% (or 70%), are these eligible as collateral for Eurosystem monetary policy operations, assuming they meet the ABS eligibility criteria?
Provided that all Eurosystem collateral eligibility criteria are fulfilled, the remaining outstanding amount of the ABS can be used as collateral in Eurosystem credit operations.
Q2.10 Will you buy ABSs based on non-performing loans?
Collateral eligibility is one requirement for eligibility of an ABS for the ABSPP. Within the general framework it is specified that ABSs will have to have a minimum second-best rating of single A. The inclusion of NPLs in the pool of underlying assets does not as such preclude these ABSs from eligibility as collateral. As part of the temporary measures to enhance collateral availability, ABSs with a minimum second-best rating of BBB can be accepted as collateral but in this case the loans must be performing, at the time of inclusion in the ABS.
As regards purchases for the ABSPP, the Eurosystem assesses the eligibility of ABSs on a case-by-case basis. Prior to purchases of ABSs under the ABSPP, additional due diligence is conducted by Eurosystem experts on a single asset basis. The published Guiding principles (with examples) of Eurosystem-preferred eligible ABSs serve as an indication of the Eurosystem’s preferences in relation to the ABSs that it considers for purchase in the context of the ABSPP. The guiding principles state that at the time of inclusion in the ABSs, the loans should be performing.
Questions on the implementation of the ABSPP
Q3.1: Question: How is the ABSPP implemented? Who makes the purchases?
Purchases under the ABSPP are currently conducted through two national central banks acting as internal asset managers (Banque de France and Banque Nationale de Belgique/De Nationale Bank van België) and two external asset managers (Amundi and NN Investment Partners) (see press release of 23 September 2015).
Each of these asset managers has been assigned a specific segment of the euro area ABS market. The asset managers are responsible for making investment recommendations on ABSs, accompanied by a full due diligence assessment, to the Eurosystem. The Eurosystem conducts its own assessment of all asset managers’ investment recommendations and makes its own due diligence assessments before a purchase decision, including on a maximum price. Asset managers therefore only have an advisory and execution function in the purchase process. The Eurosystem retains full discretion on the selection of assets for purchase and their pricing.
Following the Governing Council decision of 3 December 2015 to extend the expanded asset purchase programme including the ABSPP, the mandates of the four involved asset managers have been extended until the end of March 2017.
Q3.2: I have some ABSs which I would like to sell to the ABSPP. Whom do I need to contact?
The first point of contact is one of the four asset managers listed below. The asset manager you should contact depends on the country of the ABSs’ underlying collateral. In terms of the perimeter covered, the relevant allocation is shown below, subject to limited exceptions:
- Banque Nationale de Belgique/De Nationale Bank van België: Belgium
- Banque de France: Finland, France and Luxembourg
- Amundi: Estonia, Greece, Ireland, Lithuania, Latvia, Malta, Portugal, Spain, and part of the Dutch market
- NN Investment Partners: Austria, Cyprus, Germany, Italy, Slovenia, Slovakia, and part of the Dutch market
Q3.3: How long does it take to analyse an ABS for purchase?
The first time the Eurosystem analyses a given ABS structure it conducts a full due diligence review. This is similar to a regular credit institution’s due diligence when it acts as an investor in a securitisation pursuant to the Capital Requirements Regulation (CRR). After the asset managers have submitted an investment recommendation to the Eurosystem, this process can take up to five business days for primary market issuances and re-offerings of fully retained ABSs. At the same time, the Eurosystem strives to accommodate the primary market’s timing constraints whenever possible. Once the Eurosystem has analysed a given ABS, additional purchase decisions are generally taken within one business day.
Q3.4: Why does the ECB perform due diligence?
European financial institutions such as credit institutions, insurance undertakings and fund managers are required by the relevant legislation (CRR, Solvency II Directive, Alternative Investment Fund Managers Directive (AIFMD), etc.) to conduct due diligence prior to investing in an ABS. The Eurosystem follows a similar procedure in relation to its investments in the ABSPP, with the aim of ensuring that its purchase decisions are taken on the basis of a thorough analysis and following best market practices, just like any other ABS investor.
Q3.5: We sold a bond to the Eurosystem earlier in the programme, but now the Eurosystem no longer seems to be eager to buy it. What could be the reason for this?
The Eurosystem retains full discretion in its decision to purchase or refrain from purchasing any ABS meeting the ABSPP’s eligibility criteria, including in relation to further purchases of an ABS already purchased under the ABSPP. There could be a number of reasons for its decision in such a case. First, the ABSPP monitors all ABSs it has authorised for purchase on an ongoing basis. In the event of changing circumstances that affect any ABS programme, additional due diligence is required in line with best market practices, in order to assess the impact of the changes in the pricing and credit risk of the securities. In such cases, the ABSPP may refrain from conducting additional purchases in the security until the reassessment is finalised. Second, the Eurosystem determines a maximum price prior to approving each transaction. It is therefore possible that the Eurosystem price is not in line with the one a potential seller is seeking.
Q3.6: Is there a restriction on counterparties from which the ABSPP purchases ABSs?
In the context of the ABSPP, the following counterparties are eligible: (a) counterparties participating in Eurosystem monetary policy operations; (b) counterparties that are used by Eurosystem central banks for the investment of their euro-denominated investment portfolios; and (c) entities deemed to be eligible counterparties for outright transactions under the ABSPP by the Governing Council on the basis of a Eurosystem counterparty risk assessment by the ECB (as outlined in Article 4 of Decision ECB/2014/45).
Q3.7: Does the Eurosystem act as a “regular” investor when conducting purchases under the ABSPP?
The Eurosystem purchases ABSs at prevailing market prices or, in the case of retained bonds, alongside other investors at similar prices to those paid by them.
Q4.2: Where on the ECB’s website can I find a list of the Eurosystem’s current holdings of ABSs?
Information on aggregate ABSPP holdings can be found on a weekly basis in the section Asset purchase programmes.
Q4.3: Does the ECB publish a list of the ABSs the ABSPP has purchased or that are not eligible for ABSPP purchases?
No. The ECB does not publish a list of ABSs it has purchased, nor does it publish a list of the ABSs that are not eligible for ABSPP purchases. The eligibility criteria are stated in Decisions ECB/2014/45 and ECB/2015/31 on the ABSPP. The ECB’s guiding principles (see Q2.1) could also provide further guidance on which type of structures are considered for purchase.
Q4.4: Our institution is thinking of issuing an ABS. Can we discuss our envisaged ABS structure with the ABSPP?
The Eurosystem cannot provide pre-issuance advice. The Eurosystem's preferences can be found in the high-level, non-binding and non-exhaustive set of guiding principles (see Q2.1) in relation to the ABSs that it considers for purchase in the context of the ABSPP.