PCS user guidebook

Webinar Presentation

December 2012

• Introduction

• Summary of PCS Initiative

• The PCS Organisation

• Summary of PCS Eligibility Criteria

• The Label Process:

­ High level principles ­ Summary of Eligibility Criteria ­ Key Themes of PCS Process ­ Nine practical PCS Label Process Steps

­ Why Apply for the PCS Label

Agenda

• PCS is open for business as of 14th November, 2012

• The PCS Label test run phase has been completed and the first label has been awarded to Bilkreditt 3 Limited

• The PCS user guidebook is a practical guide to the process of obtaining and maintaining a PCS label

Introduction

• PCS is a non profit, initiative with the purpose of

creating a label for high-quality securitisations

• The purpose of the PCS Initiative includes:

- Revitalising the European securitisation market

- Supporting the growth of the European real economy

- Fostering the development of best market practices for the

European securitisation market with agreed standards of quality,

transparency, simplicity and standardisation

- Improving market confidence for all participants including investors,

issuers and regulators

Summary of PCS initiative

• The PCS Association

­ The Board of PCS Association­ The PCS Market Committee­ Other PCS Committees

• The PCS Secretariat

­ The Board of PCS Secretariat ­ PCS Staff

• Other partners

­ Screening Partners­ IT, Legal and other support

Note: The Board of PCS Association and PCS Market Committee will meet on a quarterly basis

The PCS Organisation

PCS user guidebook

PCS Secretariat (UK Private Limited Company)

PCS Secretariat (UK Private Limited Company)

PCS Association (Belgian not-for-profit association)

PCS Association (Belgian not-for-profit association)

This is the PCS Board. 9 member Board appoints committees 12 person Market Committee will assist/advise PCS Secretariat

This is the PCS Board. 9 member Board appoints committees 12 person Market Committee will assist/advise PCS Secretariat

PCS Secretariat contracts with third parties to support its work

PCS Secretariat contracts with third parties to support its work

ScreeningPartners

ScreeningPartners

Ian BellHead of PCS Secretariat

Mark LewisManaging Director

Tris LatewardOffice Manager

IT and other Advisors

IT and other Advisors

Market CommitteeMarket Committee

External CommitteeExternal

CommitteeArbitration CommitteeArbitration Committee

PCS Association – Members

• Allen & Overy • Allianz• AXA • Baker & McKenzie• Barclays • Bank of America Merrill Lynch • BBVA • Bishopsfield Capital Partners • Bloomberg • BNP Paribas • BNY Mellon • Clifford Chance • Credit Suisse • Deutsche Bank • DNB Bank• European Banking Federation • HSBC

• HSBC Global Asset Management• ING • Intesa San Paolo • J.P. Morgan • KPMG Advisory N.V.• Lewtan Technologies • Linklaters • Lloyds Banking Group • Mayer Brown• Nationwide Building Society• NIBC Bank • Obvion • Rabobank • Royal Bank of Scotland • RBS Asset Management • Santander • Securitisation Services

• Swiss Re • Societe Generale • TwentyFour Asset Management • UBS • UniCredit • Weil, Gotshal & Manges

PCS Association – Observers

A number of other institutions and associations are “Permanent Observers” of the PCS Association:

• Association for Financial Markets in Europe (AFME)• European Central Bank (ECB)• European Fund and Asset Management Association (EFAMA)• European Financial Services Roundtable (EFR) • European Investment Bank (EIB)• European Investment Fund (EIF)• Dutch Securitisation Association (DSA)• Insurance Europe • KfW• True Sale International (TSI)

• Key PCS documents

- The PCS Rule Book- The PCS Procedures Manual including appendices- The PCS Application Form- The PCS Terms and Conditions- The PCS Checklist- The Originator Certificate- The PCS Label Certificate- The PCS Compliance Certificate

• The PCS website

www.pcsmarket.org

The PCS Organisation

• PCS will only include asset classes that have performed well, are important to the real economy and meet investor needs on simplicity, transparency, quality and liquidity

• PCS is not a credit rating and is not intended to replace credit analysis

• Rating eligibility criterion will be the highest achievable credit rating in the relevant jurisdiction provided that it is investment grade

• Process is substantially algorithmic (enabling for a quicker and simpler process)

• On-going loan level reporting requirements

• Dynamic over time to accommodate market and regulatory developments

• The PCS Label can be awarded to both “market” and “retained” transactions

• Retrospective eligibility – label can be awarded to existing bonds

• Recognising existing market practices (e.g. country specific and asset class specific) provided they are consistent with investor need

The PCS Process – High Level Principles

Eligible Asset Classes

• Auto Loans and Leases, Consumer Loans, Credit Cards, Dealer Floorplan Loans, Non-auto Leases, Residential Mortgages, SME Loans

• All other asset classes and some products are excluded: such as “sub-prime” mortgages (self-certification products, equity release products), CMBS, re-securitisations and synthetic transactions

Quality

• Strict criteria exist regarding such credit components such as loan-to-value.• The issuing vehicle must be incorporated in the EEA (or Switzerland)• The securitised assets must be originated in the the EEA (or Switzerland)• Only the most senior tranche of any securitisation is eligible for the PCS Label.• Strict criteria exist to deal with the quality of underwriting(e.g. underwritten residential mortgages)

Simplicity

• Re-securitisations and synthetic transactions (such as CDO squared) are not eligible for the PCS Label

• Eligibility criteria deal with the issue of granularity with minimum number of assets in a transaction

The PCS Process - Summary of Eligibility Criteria

Transparency

• The originator must provide (where required) loan level and cash flow data • The originator must provide ongoing information on the performance of the

transaction throughout its life

Liquidity

• Transactions must meet minimum size requirements• The originator must provide information on the proportion of any issue that is not

sold to third party investors

Please see the PCS rule book and PCS Checklist for full details which can be seen at:

www.pcsmarket.org/the-label/downloads

The PCS Process - Summary of

Eligibility Criteria

The PCS Label is awarded based on explicit and public criteria

• Deal by deal approval process

• The PCS Label process is centered on the prospectus, Checklist and Originator Certificate

• The PCS Label is “binary”: all the criteria need to be met or the Label will not be capable of being awarded

• Complete accuracy in responding to the Checklist questions is critical; “near” or “almost” or “substantially” or “missing” or “partial” replies are not accepted. The wording in the Checklist and Originator Certificate responses must 100% match that of the Checklist questions.

• The PCS Eligibility Criteria are designed to remove or minimise any subjective process

• PCS Secretariat will support the Applicant by advising upon and, for certain questions, interpreting issues that may arise in relation to the Checklist (and Label process)

The PCS Process – Key Themes

• The Checklist and Originator Certificate may be subject to amendment over time for reasons including market relevance and accuracy. The board of the PCS Association will have sole discretion over any changes to criteria but will have the ability to consult with the Market Committee over any changes. The Market Committee may propose changes to the Board of the Association

• The PCS Process is fundamentally driven by the transactional law firm i.e. the law firm advising the Applicant

• The transactional law firm prepares the central document: “the PCS checklist”

• The transactional law firm must also draft the prospectus and Originator Certificate so that it allows the eligibility criteria/checklist to be screened against the prospectus and Originator Certificate

• The prospectus is a document subject to securities law and supervision of listing authorities; the checklist will therefore have a sound legal underpinning

The PCS Process – Key Themes

The nine practical PCS Label Process steps are:

1. Intention to make an Application

2. Label Application

3. Screening Partners

4. Checklist, Originator Certificate and Prospectus

5. Checklist Changes and Checklist Interpretations

6. Issues and Disputes with the Checklist, Originator Certificate and/or

Prospectus

7. Awarding the Label

8. PCS Label Fees

9. On-going Label maintenance

The PCS Label Process – Steps in the Process

• Intention to make an Application

- Early notice is encouraged especially where new label applicants, new asset classes, new jurisdictions or updated Checklists are involved

- A place in the queue, if any, for Screening Partner checklist work will be determined by date of notice of an intention to make an application or Application, whichever is the earlier

- A notice of an intention to make an application should be sent by email to admin@pcsmarket.org together with a telephone call to PCS UK staff

The PCS label process – Step 1

• Label Application

- An application form may be downloaded from the PCS website, filled in with the necessary details, signed and returned to admin@pcsmarket.org

- PCS will review the application and confirmation that the application, if accepted, will be sent within one London business day

- In the case of material issues or new technical issues, assets, jurisdictions, applicant or arranger, a verbal conversation may be necessary to discuss and review those issues and/or check that all initial checklist points have been checked and are in order or will be checked and will likely be in order

The PCS label process – Step 2

• Screening Partners

- The Screening Partners are the Irish Stock Exchange, KPMG and the TSI

- Screening Partners will be chosen for a transaction according to certain rules including country of asset and currency although as far as possible in strict rotational order

- The choice of Screening Partner is the Secretariat’s and not the Applicant’s.

- The Applicant will be notified of the chosen Screening Partner following confirmation that the Application is accepted

The PCS label process – Step 3

• Checklist, Originator Certificate and Prospectus

- A checklist may be downloaded from the PCS website at www.pcsmarket/the-label/checklist

- The transaction lawyers would typically fill in the checklist indicating for each question in the prospectus page/ref box where the relevant information can be found in the prospectus and/or Originator Certificate

- The completed checklist should then be sent to the Screening Partner with a copy to info@pcsmarket.org together with the transaction Prospectus and Originator Certificate

- Good examples of completed Checklists, Originator Certificates and Prospectuses can be found at www.pcsmarket.org/pcs-transactions

- If the Application and full documentation is in acceptable form, an Applicant should expect to receive a positive response from the PCS Secretariat within 4 days from submission of documentation

The PCS label process – Step 4

• Checklist Changes and Checklist Interpretations

- Changes to the Checklist are subject to review by the PCS Market Committee and review and approval of the Board of PCS Association which meet on a quarterly basis

- An updated PCS Checklist is expected to be published in the next few days (after a review of the existing Checklist subsequent following a number of Checklist “test” and “live” runs)

- The PCS Secretariat may provide interpretations of the Checklist for Applicants subject that interpretations of a material nature will be passed to the PCS Market Committee and Board of PCS Association

- Please see www.pcsmarket.org/the-label/interpretations for a full list of PCS Checklist interpretations to assist the Applicant to correctly complete the Checklist and Originator Certificate

- A selection of relevant and recent interpretations of the checklist can be found in the following slides of this presentation

The PCS label process – Step 5

Checklist Interpretation

Checklist Information Source

Some Checklist questions are required to be answered by reference to prospectus, some by Originator Certificate and some by a choice of either (until 15th April 2013, after which for those questions prospectus only)

FX rate Question 3 (d) (i) and others may require the provision of exchange rate information. FX rates for Checklist use will be made available from PCS Secretariat and PCS website

Eligible Currencies A list of Eligible currencies will be made available on the PCS website and from PCS Secretariat

Highest achievable ratings question 3 (a) (ii)

The required ratings levels will shortly be published on the PCS website for certain key European countries and otherwise available from PCS Secretariat

Question 5 (b) (i) and similar “prospectus…discloses reps, warranties…”

These questions simply require confirmation that the relevant representations, warranties, etc. are given rather than an analysis of the quality of them

Domestic Market guidelines (“DMG”)

At present, DMG only include the DSA guidelines. The list may expand in the future

Checklist Interpretation

Question 6 (b) (xvii) and other yes/no questions

The responses are only “yes, plus reference” or “no”. Partial or not applicable responses are not permitted

“As far as the Originator is aware”

This response can be used for certain questions involving statements of fact e.g. question 3 (e) (xvii). Further information is available on the PCS website or from PCS Secretariat

Specified date This is a hard date (subject to possible amendment next few days) but please be careful to ensure Specified Dates are within use

Question 3 (b) (iv) ratings triggers

This question only requires certain information where triggers exist or a statement that none exist. In transactions where triggers exist, information is not required on aspects of those transactions where no triggers exist

Question 3 (e) (vii) definition of default

Default is not a defined term at present and is determined by the use given in the relevant prospectus

• Issues and disputes with the Checklist, Originator Certificate and/or Prospectus

- An Application may be rejected for a number of reasons including:o Checklist not in acceptable formo Originator Certificate not in acceptable formo Prospectus not in acceptable formo Reputational issues

- PCS Secretariat, the Screening Partner will discuss, in good faith, solutions to the problem/s with a view to amending the documentation into an acceptable form

- Matters relating to the interpretation of the labeling criteria will be determined by the Head of the PCS Secretariat

- If the Applicant does not accept the determination of the Head of the PCS Secretariat, it shall be entitled to lodge an appeal with the PCS Market Committee

The PCS label process – Step 6

• Following the judgment of the PCS Market Committee, the Applicant may make a final appeal to the but only on grounds of procedure or natural justice

• Please see full process in relation to problems and appeals in the PCS Procedures Manual or go to www.pcsmarket.org/the-label/downloads

The PCS label process – Step 6

• Awarding the label

- When the Screening Partner has completed its checks, it will send a letter to PCS Secretariat advising that the checklist has been fully and correctly filed out or there certain issues that cannot be resolved

- PCS will review the application and confirmation that the application, if accepted, will be sent within one London business day

- In the case of material issues or new technical issues, assets, jurisdictions, applicant or arranger, a verbal conversation may be necessary to discuss and review those issues and/or check that all initial checklist points have been checked and are in order or will be checked and will likely be in order.

The PCS label process – Step 7

• PCS Label fees

– The fees for the PCS Label shall be payable in Euros or Pounds Sterling depending on the currency in which the securities are denominated

– The fees become payable as soon as a checklist is received by a Screening Partner irrespective of whether the PCS Label is awarded. Payment should be made by the Applicant within 30 days of receiving an invoice which is typically sent around closing date

– The PCS Label fee, if denominated in Euros is: Euro 9,650 + VAT (if applicable); The PCS Label fee, if denominated in GBP is: GBP 7,500. + VAT (if applicable)

– From the start of 2015, an annual maintenance fee will be charged for each transaction receiving the label after April 30, 2013 of GBP 5,000 or Euro 6,000 + VAT (if applicable)

– For the full terms and conditions regarding fees and the PCS Label, please consult the PCS Terms and Conditions and the PCS policies and procedures manual or visit www.pcsmarket.org/the-label/application-forms-fees

– Please note that PCS reserves the right to increase the fees in the circumstances set out in the PCS Terms and Conditions

The PCS label process – Step 8

• On-going label maintenance

- On an annual basis, no later than one month after the award of the PCS Label, the Applicant will be required to send to the PCS Secretariat a Compliance Certificate in the form of Appendix 6 of the PCS policies and procedures manual

- The Compliance Certificate form may be found at www.pcsmarket.org/the-label/downloads

- Failure to send in the annual compliance Certificate will result in a withdrawal of the label

The PCS label process – Step 9

• Support for the return of a broad and strong European securitisation market

• All-industry initiative with support across the European spectrum

• Help establish the PCS Label with European investors, regulators, central banks and policy makers; stronger participation will lead to stronger attention to the PCS Label

• Low cost of access to the PCS Label

• Significant potential future benefits of the PCS Label; leveling the regulatory playing field

Why Apply for the PCS Label ?

Ian Bell, Head of PCS SecretariatTel: +44 (0) 20 3440 3721Mob: +44 (0) 7500 558 040E: ian.bell@pcsmarket.org

Mark Lewis, Head of PCS OperationsTel: +44 (0) 20 3440 3722Mob: +44 (0) 7500 448 833E: mark.lewis@pcsmarket.org

Tris Lateward, Office ManagerTel: +44 (0) 20 3440 3723Mob: +44 (0) 7780 333 895E: tris.lateward@pcsmarket.org

info@pcsmarket.org (for general enquiries)

admin@pcsmarket.org (for the label applications)

www.pcsmarket.org/contact-us

Contacts at the PCS Secretariat