ABF Glossary

Financing where repayment is primarily sourced from cash flows generated by a specific pool of financial or real assets, rather than from the general operating cash flows of the borrower. Broader than ABS: includes private bilateral loans, warehouse facilities, forward-flow agreements, SRT structures, and publicly issued securities.

Tradeable securities whose cash flows are backed by a pool of financial assets. A specific, publicly traded or 144A subset of ABF — all ABS falls under ABF, but ABF includes non-securitised structures.

A revolving credit facility secured by a borrowing base of current assets (accounts receivable, inventory) with advances capped by eligible collateral value. Typically bilateral, funded by one or few lenders; collateral pool is corporate rather than consumer/financial.

Short-term notes (≤397 days) issued by a conduit that holds a diversified pool of financial assets; conduit continuously rolls ABCP to fund longer-dated assets. Creates maturity transformation risk; ABCP conduits are subject to Article 17 ESMA disclosure requirements.

A revolving credit facility that funds asset origination before the assets are securitised or sold; the warehouse lender holds a first-priority lien on the asset pool. A temporary funding mechanism — not a permanent funding structure.

A contractual commitment by a buyer to purchase specified assets from an originator at pre-agreed prices over a defined period, typically 12–36 months. Differs from a warehouse: the buyer purchases outright (no repo); originator retains no ongoing interest; price discovery is forward-looking.

The process of pooling financial assets (loans, leases, receivables) into a special purpose vehicle, which issues tranched securities backed by the cash flows from those assets. EU definition (SR 2017/2402 Article 2): a transaction where the credit risk associated with an exposure is tranched.

A capital relief structure where a bank transfers the credit risk of a reference portfolio via protection instruments (CLN or CDS) without selling the assets. Assets remain on the bank's balance sheet; only the credit risk is transferred; EU-regulated under SR Articles 26a–26e.

A bankruptcy-remote legal entity created solely to hold assets and issue securities or borrow against those assets. Bankruptcy-remoteness is the defining feature — achieved through limited purpose charter, limited recourse provisions, and non-consolidation opinions.

The EU Securitisation Regulation's specific term for the SPV holding securitised assets. Defined in SR Article 2(2): must not carry out any activity other than securitisation.

The entity that originated the assets transferred into the securitisation. Under EU SR Article 6, the originator must retain a ≥5% material net economic interest.

An SPV whose equity is held by a professional trustee in a purpose trust (typically Cayman Islands, Jersey, or Ireland), ensuring it is not owned by or consolidated with the originator.

Under US GAAP (ASC 810): an entity where the controlling party is determined by economic exposure to variable returns rather than voting rights. If the originator is the primary beneficiary, it must consolidate the SPV despite legal transfer of assets.

A transfer of assets constituting a legal sale (not a secured loan) so that the assets are excluded from the originator's insolvency estate. Requires: intent of parties; no obligation to repurchase at par; no practical control retained; supported by a true sale legal opinion.

The maximum loan amount a borrower may draw under a revolving credit facility, calculated as the sum of eligible collateral values multiplied by applicable advance rates. Distinct from a fixed loan: availability fluctuates as collateral values change; monthly BBC certification is standard.

Receivables that satisfy contractual eligibility criteria and can be included in the borrowing base. Ineligible receivables (delinquent, government obligors, concentrated, cross-border) are excluded.

The percentage of eligible collateral value that lenders will fund against; reflects the expected recovery rate in a stress liquidation scenario. Accounts receivable: 70–85%; inventory: 40–65%; equipment: 60–75%; real property: 50–65%.

A periodic certification (typically monthly) by the borrower confirming the composition and value of the collateral pool. The BBC is the primary operational control document; lenders may field audit the BBC quarterly.

A cap on the proportion of the borrowing base attributable to a single obligor, industry sector, or asset type. Prevents a single default from causing a disproportionate availability reduction; typically 10–25% per obligor.

A trigger that removes an asset or LP commitment from the borrowing base (e.g., delinquency, counterparty downgrade, investor failure to fund). Common in both ABL (receivables aging out) and fund finance (LP sovereign immunity).

The reduction in accounts receivable balances through credits, returns, disputes, and volume discounts — rather than through cash payment. Dilution reserve is an advance rate deduction: if trailing 12-month dilution is 8%, lenders may subtract 8% from the AR advance rate.

A mechanism where all collection account receipts are swept daily to pay down the outstanding revolving balance. Hard (full) cash dominion applies from day one; springing cash dominion activates when excess availability falls below a threshold (typically 10–25% of facility size).

Structural mechanisms that improve the credit quality of notes issued by an SPV, protecting noteholders from losses. Can be internal (OC, excess spread, subordination, reserve accounts) or external (letters of credit, guarantees, insurance wraps).

The excess of asset principal over the face value of issued notes; expressed as OC ratio = asset balance / note balance. Example: $110M assets backing $100M notes = 110% OC ratio = 10% OC amount.

The structural seniority ordering of tranches: losses are absorbed by junior notes before reaching senior notes. Also expressed as “credit enhancement level” for the senior tranche.

The difference between interest received on the asset pool and interest paid on issued notes plus fees. The first line of defence absorbing losses; captured in the spread account before OC tests apply.

A cash account funded at closing that provides a liquidity and credit buffer. Typically sized at 0.5–2% of initial pool balance; replenished from excess spread after other waterfall payments.

A committed credit line (typically from a bank) that the SPV can draw on to cover timing gaps between asset cash flows and note payment dates. Does not cover credit losses — only liquidity shortfalls.

Payments made by the servicer of delinquent scheduled amounts (typically up to 30–60 days) to maintain cash flow continuity to noteholders. Recoverable from future collections; act as temporary CE preventing interest shortfalls.

The contractual priority of payment sequence in a securitisation. Standard structure: senior expenses → senior interest → OC test → junior interest → reserve replenishment → equity distributions.

Formula: OC Ratio = Performing Asset Par / Outstanding Note Balance. Failure redirects excess interest proceeds to repay senior notes (turbo). CLO Class A/B OC test minimum typically 121–128%.

Formula: IC Ratio = Available Interest Income / Required Interest Payments. Failure traps cash before equity distributions. Typical CLO IC minimum ~120%.

Accelerated repayment of senior notes triggered by OC or IC test failure, funded by diverting excess spread. Conditional turbo: applies only while the test is failing. Unconditional turbo: always redirects; common in European CLOs.

A principal waterfall in which all available principal is applied to the most senior outstanding tranche until fully repaid before any proceeds flow to junior tranches. Standard during amortisation and post-trigger periods.

A principal waterfall in which principal proceeds are distributed proportionally across all tranches simultaneously. Common during revolving period within parameters; switches to sequential on trigger breach.

The capture of excess spread to cure an OC or IC test deficiency. Standard mechanic: trap 50% of remaining interest proceeds (or the exact amount needed to cure, whichever is less) and redirect to senior principal.

An accounting mechanism recording the running total of principal losses. When a default occurs, it is debited from the PDL; when excess spread cures it, it is credited. Common in RMBS and CLOs.

Annualised measure of the percentage of outstanding principal prepaid in excess of scheduled amortisation. Monthly equivalent: SMM = 1 − (1 − CPR)^(1/12). High CPR shortens pool life and compresses investor yield.

Annualised measure of the percentage of outstanding principal defaulting in a given period. CDR × (1 − Recovery Rate) = net loss rate. CDR is a gross measure.

The number of calendar days since a scheduled payment was due but not received. 30–59 DPD: early delinquency; 60–89 DPD: serious delinquency; 90+ DPD: default in most consumer pools.

Net credit losses as a percentage of average pool balance. Gross loss rate = charge-offs / average balance; Net loss rate subtracts recoveries.

The proportion of a defaulted loan balance ultimately collected. Secured consumer auto: 50–65%; unsecured consumer: 5–20%; equipment: 40–60%.

Performance tracking of loans originated in the same calendar period (month, quarter, year), allowing like-for-like comparison across cohorts. The primary tool for identifying underwriting deterioration.

Collections received ÷ beginning balance. Measures revolving pool health for credit cards and ABCP structures. If PR falls below the minimum payment rate threshold, early amortisation triggers.

A securitisation or synthetic structure where a bank transfers a material portion of credit risk of a reference portfolio, satisfying regulatory tests that allow reduction of regulatory capital. EU test: quantitative (RWA ratio) or qualitative; EBA Guidelines (July 2023) govern assessment.

A funded credit derivative: investor pays cash upfront; issuer pays a coupon; in a credit event, the investor loses principal. Funded structure vs unfunded CDS; CLNs dominate SRT issuance (~85–90%).

The loss level in the reference portfolio at which the protection seller (investor) begins to bear losses. EU SRT mezzanine: typically ~1–3% attachment point.

The loss level at which the investor's tranche is fully exhausted. EU SRT mezzanine: typically ~7–9% detachment point; losses above fall to the bank's retained position.

The portion of excess spread contractually committed by the bank to absorb losses before the first-loss tranche. Must be capitalised as a retained securitisation position under CRR3.

The CRR3/Basel IV requirement that IRB model-derived RWAs cannot fall below 72.5% of standardised RWAs (phasing 2025–2027). Limits capital relief achievable via internal model-based SRT.

The most junior tranche; absorbs losses first. Banks typically retain 0.5–1.5% of portfolio as first-loss in EU SRT. Risk retention requirement (5%) often satisfied by this piece.

Multiplier in the SEC-SA method for retained securitisation positions. p=1.0 for non-STS; p=0.5 for STS. Lower p-factor halves the capital charge — key incentive to obtain STS designation.

Revolving credit facility secured by a fund's rights to call uncalled LP capital commitments. Also called “capital call line” or “sub line”; collateral is LP promises to pay, not assets.

Loan secured by the net asset value of a fund's investment portfolio. Distinct from subscription line: secured by existing assets (not future capital); used in later fund lifecycle.

Fund finance structure combining subscription (uncalled commitments) and NAV (portfolio value) collateral. Flips over the fund lifecycle from sub-line dominant to NAV dominant as capital is deployed.

An LP rated at or above a specified creditworthiness threshold whose uncalled commitment counts towards the subscription borrowing base at standard advance rates (85–90% for large facilities). Exclusion triggers: sovereign immunity without waiver, side letter set-off rights, failure to fund, downgrade.

An LP below the Included Investor threshold (unrated, lower-rated, family office) included in the borrowing base at lower advance rates (50–75%). Inclusion typically requires all-lender consent.

European fund finance methodology: no per-investor advance rates; instead, eligible LP commitments must cover total fund debt at a minimum 1:1 ratio. Administratively simpler than the US Borrowing Base Approach.

A GP-led secondary vehicle where selected assets from an existing fund are transferred into a new SPV, with LPs offered liquidity (sell) or rollover (invest in new vehicle). Requires independent fairness opinion (ILPA July 2024 guidance).

Total distributions to LPs ÷ total capital called. A key fund performance metric improved by NAV-funded distributions — a controversial use case flagged in ILPA guidance.

EU designation under SR Articles 19–26 for traditional securitisations (Articles 26a–26e for on-balance-sheet synthetic) meeting specified quality criteria, conferring preferential capital treatment. Must be notified to ESMA via portal (traditional) or email STSnotifications@esma.europa.eu (synthetic).

EU SR Article 6 / UK SR requirement: originator, sponsor, or original lender must retain ≥5% material net economic interest. Can be: (a) vertical slice; (b) random sample; (c) first-loss tranche; (d) first-loss in each tranche; (e) seller's interest in revolving structures.

ESMA-registered repositories (EuroDW and SecRep B.V.) where securitisation loan-level and investor reports must be filed. Issuers must file with one; ESMA DESK portal provides investor access.

UK post-Brexit domestic framework, effective November 1, 2024 (FCA SECN sourcebook, PRA PS7/24). Broadly mirrors EU SR but with UK-specific modifications; FCA CP26/6 (Feb 2026) proposes further UK divergence.

US law governing security interests in personal property including financial assets. Creditor must “perfect” via UCC-1 financing statement. 5-year term; must be continued within 6-month window before expiry; debtor name must exactly match state-registered legal name.

Steps required to make a security interest enforceable against third parties. US: UCC-1 filing; UK: registration at Companies House within 21 days of creation; different regimes for different asset types.

A transfer of assets constituting a legal sale (not a secured loan). Requires: (1) intent of parties; (2) no obligation to repurchase at par; (3) no practical control retained; (4) true sale legal opinion. See also: VIE/ASC 810 for US GAAP consolidation consequences.

EU regulation (2024/1623) implementing Basel IV in the EU, effective January 1, 2025. Introduces output floor phasing to 72.5% of standardised RWAs by January 2027. Materially affects SRT economics and bank capital models.

The fraudulent assignment or pledging of the same asset as collateral to two or more separate lenders simultaneously. Most common in commodity finance, accounts receivable, and automotive lending; requires real-time IVA/deduplication to prevent.

Independent third party verifying the existence, quantity, condition, and ownership of physical assets used as collateral. Key KPIs: Exception Detection Rate, Duplicate Hit Rate, Turnaround Time, Verification Coverage, Data Latency.

In EU/UK STS securitisation: an ESMA-registered or FCA-registered independent entity verifying the originator's STS self-certification. ESMA Peer Review (March 2025) found NCAs over-relying on TPV attestations.

A filing extending a UCC-1 financing statement's validity for an additional 5-year period. Must be filed in the 6-month window before the original statement's expiry. Missing continuation = lapsed perfection = assets available to trustee-in-bankruptcy.

Operational control matching loan data tape to actual cash collections; identifies synthetic/phantom loans and data manipulation. Should be run at high frequency (daily/weekly) for ABF portfolios.

UK-specific security interest over a class of assets that “floats” over the pool as assets cycle in and out, crystallising into a fixed charge on default. Broadly analogous to UCC Article 9 “after-acquired property” clause.

A single agent holding and managing collateral identifiers across all facilities with the same originator, providing cross-lender visibility without requiring direct data sharing between funders. An emerging structural response to double-pledging risk.