The Australian Prudential Regulation Authority (APRA) has declared that it will allow master trusts under its proposed new securitisation regime, but not if they are simply de facto covered bonds.
APRA executive general manager Charles Littrell has told an Australian Securitisation Forum that master trusts had seemed to "possess near-mythical attraction for some in our market".
"In summary, APRA proposes to allow master trusts, but not if they are de facto covered bonds," he said.
"The core issue here is that the so-called seller's share in a master trust cannot become the equivalent of excess collateral in a covered bond vehicle," Littrell said.
"This means, among other things, that the seller share must rank at least equal to the most senior instruments in the structure."
He said master trusts would allow "soft bullet arrangements", but APRA would be concerned to ensure that those arrangements were "not so firm that the originator is on the hook for repayment, if the asset pool is insufficient to the task".
Littrell said he expected APRA would be issuing a discussion paper on its proposed securitisation reforms in the near future, but that the recent change of Government meant some of the necessary administrative arrangements were under discussion.
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