Although cash collections on the acquired receivables are intended to fully repay the commercial paper, the sponsor bank (sometimes in tandem with other banks) provides liquidity support and credit enhancement to the vehicle. As the name implies, these entities are structured to acquire receivables from numerous originators (sellers), financed by issuing commercial paper. To accelerate receipt of operating cash flows, companies sometimes transfer (sell) trade receivables or short-term consumer loans to a multi-seller asset-backed commercial paper conduit ("conduit"), a limited-purpose securitization entity sponsored and administered by a bank. Accordingly, for purposes of one of ASC 860’s sale accounting requirements, interests issued by the securitization entity to third-party investors may serve as the "unit of analysis," as discussed in TS 3. As noted above, beneficial interests in securitized financial assets are considered tantamount to the assets themselves. Thus, financial assets acquired by the SPE typically can be disposed of only in limited circumstances prescribed in the controlling agreements. By design, most securitization entities do not have the right to freely pledge or exchange acquired financial assets–as the investors want assurance that the cash flows from those assets will be available to service their beneficial interests.The reference to "seller" encompasses both the originator and BRE unless otherwise indicated. Figure TS 1-5, Figure TS 1-6, Figure TS 1-7, and Figure TS 1-8 illustrate the standard "two-step" transfer configuration seen in practice. As discussed in TS 3, the two-step process is intended to "legally isolate" the transferred assets from the transferor in the event of the transferor’s bankruptcy or receivership–a condition of keen interest to rating agencies and investors. The BRE then transfers (sells) the assets to the securitization entity - the "second step" of the transfer. Under these arrangements, the transferor first sells the financial assets to a wholly-owned special-purpose entity intended to be bankruptcy remote (commonly referred to as a "BRE"). Most securitizations use a "two-step" transfer construct.Nevertheless, the four securitization platforms incorporate certain common characteristics driven by shared commercial and legal considerations that, in turn, have influenced the evolution of the sale accounting model in ASC 860 and how it is applied in practice. The particulars of each structure, and roles and economic interests of the parties customarily involved with them, vary–sometimes significantly. Transfers and servicing of financial assetsįigure TS 1-5, Figure TS 1-6, Figure TS 1-7, and Figure TS 1-8 illustrate the principal structural characteristics of common securitizations. Revenue from contracts with customers (ASC 606) Loans and investments (post ASU 2016-13 and ASC 326) Investments in debt and equity securities (pre ASU 2016-13) Insurance contracts for insurance entities (pre ASU 2018-12) Insurance contracts for insurance entities (post ASU 2018-12) IFRS and US GAAP: Similarities and differences Business combinations and noncontrolling interestsĮquity method investments and joint ventures
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