Multi-product credit facilities with no specific credit sub-limits
Imagine a multi-product credit facility (with a higher-level credit limit of €5 million) which allows the debtor to draw funds vis-à-vis two products (AAA and BBB), whereby no individual credit sub-limits have been set for those products. Each product is subject to AnaCredit reporting, but the debtor has not drawn any funds yet. Given the criteria for reporting credit cross-limit structures, can you provide guidance on how such a case should be reported to AnaCredit?
Are the following assumptions correct?
• The off-balance-sheet amount for instrument AAA is €5 million.
• The outstanding nominal amount for instrument AAA is €0 million.
• The off-balance-sheet amount for instrument BBB is €0 million.
• The outstanding nominal amount for instrument BBB is €0 million.
How should such a case be reported to AnaCredit?
According to Section 3.1.5 of Part II of the AnaCredit Manual (as well as the general provisions of Section 3 of Part III, which deals specifically with such instruments), the establishment of the higher-level credit limit does not, in itself (i.e. without the creation of the corresponding instruments) entail a reporting obligation. Thus, instruments under higher-level credit limits are only subject to AnaCredit reporting if they have actually been created by the reporting agent in accordance with Section 3.1.5 of Part II of the AnaCredit Manual (e.g. if they have been created in the bank’s IT system and have been assigned unique identifiers).
Consequently, a distinction should be drawn between the two cases below:
Case 1: The instruments in question have not been created yet
In this case, neither the higher-level credit cross-limit nor the individual products are subject to AnaCredit reporting. This changes when the instruments are created.
Case 2: The instruments have been created by the reporting agent
In this case, the two products constitute instruments under the higher-level credit limit which are subject to AnaCredit reporting. However, the higher-level credit limit itself is not subject to AnaCredit reporting (see Section 22.214.171.124.1 of Part I of the AnaCredit Manual).
Notably, if no individual credit sub-limits are set for those products, it is assumed that the debtor can draw funds of up to €5 million from each instrument, but not more than €5 million in total (owing to the higher-level credit limit).
Please note that the question of whether an instrument comprises undrawn amounts (i.e. additional funds can be drawn vis-à-vis the instrument) depends, among other things, on the nature of the instrument in question (e.g. revolving versus non‑revolving) and the existence of higher-level credit limits or sub-limits (beyond which funds cannot be drawn by the debtor).
Generally speaking, revolving instruments comprise undrawn amounts (unless they have been fully utilised), while non-revolving instruments, such as lump-sum credits, when disbursed, do not comprise undrawn amounts. Please refer to Section 3.4.3 of Part III of the Manual, which further clarifies the difference between lump-sum credits and instruments which do comprise undrawn amounts under a credit cross-limit structure.
In this example, there is no indication of whether either of the instruments is of a revolving nature. Nevertheless, it is assumed that both instruments comprise undrawn amounts.
In the context of AnaCredit, the off-balance-sheet amount reflects the extent to which additional funds can be drawn on the reporting reference date.
For general guidance on determining off-balance-sheet amounts in the case of higher-level credit limits, see Section 3.4.3 of Part III of the Manual, which states that “generally, as off-balance-sheet amounts of instruments under a credit cross-limit primarily depend on the credit limit which is assigned at the level of a credit cross‑limit structure and cannot therefore be unequivocally determined, they are allocated by the reporting agents taking into consideration the outstanding nominal amount(s) of the instruments under the credit cross-limit and the remaining off‑balance-sheet amount of the cross-limit.”
Assuming that both of the instruments in this example entail undrawn amounts, they are dependent on the credit limit assigned at the level of the credit cross-limit structure.
This means that the total higher-level credit limit (€5 million), minus any drawn amounts as represented by the outstanding nominal amounts for the instruments under the credit cross-limit (€0 in this case), is reflected in the off-balance-sheet amounts reported by the reporting agent vis-à-vis the two instruments. Thus, given that both instruments have an outstanding nominal amount of €0, the off‑balance‑sheet amount for one instrument should be a portion of the overall higher-level credit limit minus the amount reported as the off-balance-sheet amount for the other instrument. In other words, since no funds have yet been disbursed for either instrument, the sum of the off-balance-sheet amounts reported for the two instruments is €5 million.
The two instruments could therefore be reported to AnaCredit as follows:
Outstanding nominal amount
Please note that although the total higher-level credit limit has been divided equally between the two instruments, AnaCredit does not generally specify how reporting agents should allocate off-balance-sheet amounts. Nevertheless, Section 3.4.3 of Part III of the Manual indicates a number of aspects that reporting agents should consider when allocating off-balance-sheet amounts under a credit cross-limit structure.