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Further technical specifications for the temporary expansion of the collateral framework

17 November 2008

With reference to the measures announced by the European Central Bank (ECB) on 15 October 2008, i.e. the temporary expansion of the list of assets eligible as collateral in Eurosystem credit operations, the Eurosystem provides further technical specifications on the enlarged eligibility criteria which will remain in force until the end of 2009.

As of 17 November 2008, the Eurosystem will accept as collateral in its credit operations euro-denominated syndicated credit claims, governed by the law of England and Wales (English law), subject to the conditions and procedures, as described below and set out in detail in the Decision of the European Central Bank of 14 November on the implementation of Regulation ECB/2008/11 of 23 October 2008 on temporary changes to the rules relating to eligibility of collateral (ECB/2008/15), which will be published on the ECB website and the Official Journal.

For syndicated loans under English law, the total number of different governing laws that are applicable to (i) the counterparty, (ii) the creditor, (iii) the debtor, (iv) the guarantor (if relevant), (v) the credit claim agreement and (vi) the mobilisation agreement shall not exceed three.

To take account of prevailing market practices, such borrowing activities conducted by a non-financial corporation through a special purpose vehicle (SPV) are considered eligible provided that this non-financial corporation has fully guaranteed the SPV, and that the guarantee complies with the requirements set out in Chapters 6.2.2 and 6.3.3 of the General Documentation.

To contain the credit risk that is related to the facility agent in the syndicate, responsible for the collection and distribution of payments, the facility agent must have a minimum long-term rating of ‘A-’ by Fitch or Standard & Poor’s, ‘A3’ by Moody’s or ‘AL’ by Dominion Bond Rating Services (DBRS).

Syndicated loans will be considered to be denominated in euro provided that the relevant loan agreement does not allow the debtor or the debtor’s agent, on its behalf, to vary from the denomination of euro at any time before the maturity of the relevant Eurosystem credit operation.

Eurosystem national central banks (NCBs) will mobilise syndicated loans governed by English law directly from the relevant counterparty in accordance with their respective domestic procedures for credit claims. The mobilisation agreement will be governed by the law of a Member State belonging to the euro area.

To ensure the validity of mobilisation under English law, the counterparty will be required to notify the debtor under a syndicated loan agreement of the mobilisation of such syndicated loan as collateral before or immediately following mobilisation of the loan. Counterparties will also be required to provide the relevant NCB with a copy of the confirmation received from the Registrar of Companies of England and Wales that mobilisation of the syndicated loan has been registered at Companies House.

Further legal requirements, most notably relating to the transferability of the loan, but also relating to a) set off issues, b) restrictions on the realisation of the loan, c) the consequences of the replacement of a lender, d) the disclosure of confidential information regarding the debtor and e) taxation and indemnity matters are specified in the Decision of the European Central Bank of 14 November on the implementation of Regulation ECB/2008/11 of 23 October 2008 on temporary changes to the rules relating to eligibility of collateral (ECB/2008/15).

To confirm compliance with all these requirements, counterparties will be required, before mobilisation, to deliver to the relevant NCB an opinion of UK (and other appropriate) tax counsel and a diligence letter from external legal counsel addressing a number of due diligence matters in a manner and form satisfactory to the Eurosystem. This diligence letter, which may be further elaborated by the ECB from time to time, is published on the ECB website.

For the time being, Correspondent Central Banking Model (CCBM) procedures for the cross-border use of credit claims (as reflected in chapter 6.6 of the General Documentation) shall not apply to the mobilisation of syndicated loans. Syndicated loans mobilised with one NCB cannot be used on a cross-border level to collateralise credit provided by other NCBs through branches and subsidiaries located in other countries. The Eurosystem may consider whether a further variant to the CCBM to deal with the cross-border use of this type of collateral could be implemented in the short-term, should the business cases for it arise.

Counterparties are invited to contact their respective national central banks (home central bank) on further operational and legal implementation aspects.


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