(1) Prior to origination of the commercial loan, the originator:
(i) Verified and documented
the financial condition of the borrower:
(A) As of the end of the borrower’s two most
recently completed fiscal years; and
(B) During the period, if any, since the end of its most recently
completed fiscal year;
(ii) Conducted an analysis of the borrower’s
ability to service its overall debt obligations during the next two
years, based on reasonable projections;
(iii) Determined that, based on the
previous two years’ actual performance, the borrower had:
(A) A total liabilities ratio of 50 percent
or less;
(B) A leverage ratio of 3.0
or less; and
(C) A DSC ratio of 1.5
or greater;
(iv)
Determined that, based on the two years of projections, which include
the new debt obligation, following the closing date of the loan, the
borrower will have:
(A)
A total liabilities ratio of 50 percent or less;
(B) A leverage ratio of 3.0 or less; and
(C) A DSC ratio of 1.5 or greater.
(2) Prior
to, upon or promptly following the inception of the loan, the originator:
(i) If the loan is
originated on a secured basis, obtains a perfected security interest
(by filing, title notation or otherwise) or, in the case of real property,
a recorded lien, on all of the property pledged to collateralize the
loan; and
(ii) If the loan documents
indicate the purpose of the loan is to finance the purchase of tangible
or intangible property, or to refinance such a loan, obtains a first
lien on the property.
(3) The loan documentation for the commercial loan includes covenants
that:
(i) Require
the borrower to provide to the servicer of the commercial loan the
borrower’s financial statements and supporting schedules on an ongoing
basis, but not less frequently than quarterly;
(ii) Prohibit the borrower from retaining
or entering into a debt arrangement that permits payments-in-kind;
(iii) Impose limits on:
(A) The creation or existence of any other
security interest or lien with respect to any of the borrower’s property
that serves as collateral for the loan;
(B) The transfer of any of the borrower’s assets that serve as collateral
for the loan; and
(C) Any change to
the name, location or organizational structure of the borrower, or
any other party that pledges collateral for the loan;
(iv) Require the borrower and any
other party that pledges collateral for the loan to:
(A) Maintain insurance that protects against
loss on the collateral for the commercial loan at least up to the
amount of the loan, and that names the originator or any subsequent
holder of the loan as an additional insured or loss payee;
(B) Pay taxes, charges, fees, and claims,
where non-payment might give rise to a lien on any collateral;
(C) Take any action required to perfect
or protect the security interest and first lien (as applicable) of
the originator or any subsequent holder of the loan in any collateral
for the commercial loan or the priority thereof, and to defend any
collateral against claims adverse to the lender’s interest;
(D) Permit the originator or any subsequent
holder of the loan, and the servicer of the loan, to inspect any collateral
for the commercial loan and the books and records of the borrower;
and
(E) Maintain the physical condition
of any collateral for the commercial loan.
(4) Loan payments required under the
loan agreement are:
(i) Based on level monthly payments of principal and interest (at
the fully indexed rate) that fully amortize the debt over a term that
does not exceed five years from the date of origination; and
(ii) To be made no less frequently than
quarterly over a term that does not exceed five years.
(5) The primary source of repayment
for the loan is revenue from the business operations of the borrower.
(6) The loan was funded within the
six (6) months prior to the cut-off date or similar date for establishing
the composition of the securitized assets collateralizing the asset-backed
securities issued pursuant to the securitization transaction.
(7) At the cut-off date or similar date
for establishing the composition of the securitized assets collateralizing
the asset-backed securities issued pursuant to the securitization
transaction, all payments due on the loan are contractually current.
(8) (i) The depositor
of the asset-backed security certifies that it has evaluated the effectiveness
of its internal supervisory controls with respect to the process for
ensuring that all qualifying commercial loans that collateralize the
asset-backed security and that reduce the sponsor’s risk retention
requirement under section 244.15 meet all of the requirements set
forth in paragraphs (a)(1) through (7) of this section and has concluded
that its internal supervisory controls are effective;
(ii) The evaluation of the effectiveness
of the depositor’s internal supervisory controls referenced in paragraph
(a)(8)(i) of this section shall be performed, for each issuance of
an asset-backed security, as of a date within 60 days of the cut-off
date or similar date for establishing the composition of the asset
pool collateralizing such asset-backed security; and
(iii) The sponsor provides, or causes
to be provided, a copy of the certification described in paragraph
(a)(8)(i) of this section to potential investors a reasonable period
of time prior to the sale of asset-backed securities in the issuing
entity, and, upon request, to its appropriate Federal banking agency,
if any.
(1) The
failure of the loan to meet any of the requirements set forth in paragraphs
(a)(1) through (7) of this section is not material; or
(2) No later than 90 days after the determination
that the loan does not meet one or more of the requirements of paragraphs
(a)(1) through (7) of this section, the sponsor:
(i) Effectuates cure, establishing conformity
of the loan to the unmet requirements as of the date of cure; or
(ii) Repurchases the loan(s) from
the issuing entity at a price at least equal to the remaining principal
balance and accrued interest on the loan(s) as of the date of repurchase.
(3) If the sponsor cures
or repurchases pursuant to paragraph (b)(2) of this section, the sponsor
must promptly notify, or cause to be notified, the holders of the
asset-backed securities issued in the securitization transaction of
any loan(s) included in such securitization transaction that is required
to be cured or repurchased by the sponsor pursuant to paragraph (b)(2)
of this section, including the principal amount of such loan(s) and
the cause for such cure or repurchase.
