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ARC publishes updated Global Credit-Linked Note and Repackaging Vehicle Rating Criteria
26-02-2018

London, 26 February 2018 - ARC Ratings has published its updated Global Credit-Linked Note and Repackaging Vehicle Rating Criteria. This is an update to the methodology previously published on 23 February 2017. There are no material changes and as such no rating impact. This methodology can be accessed at www.arcratings.com.


ARC Ratings’ (“ARC”) Global Summary Credit-Linked Note (“CLN”) and Repackaging Vehicle Rating (“Repack”) Criteria (the “Criteria”) apply to notes issued, mainly by corporates or financial institutions, that rely upon the performance of one or more underlying counterparties (the “Reference Entity or Reference Entities”). The main feature of these notes is the absence of credit enhancement, where a failure by any of the Reference Entities to perform its obligations under a transaction can result in a default of the notes. The Criteria does not apply to senior secured securities issued by corporates that benefit from certain structural enhancements. The rating on a CLN / repack is based on an analysis of the CLN / repack issuer's underlying securities and liabilities, counterparties, and the transaction's structure. The rating addresses payment of interest and principal payments unless one of the underlying counterparties or reference entities has defaulted. A default is deemed to have occurred when a payment has been missed or the underlying entity has become subject to insolvency proceedings. CLNs are typically transactions where an investor purchases a note issued by a bankruptcy remote SPV (the “Issuer”). The note is synthetically credit linked to a Reference Entity or the Reference Entities, which may be achieved by a credit default swap (“CDS”) or other means. Proceeds from the issuance of the note are used to purchase a qualified investment or underlying securities issued by the Reference Entities (this may also include loans advanced to Reference Entities where the SPV acquires the loan and loan agreement which may have been advanced by a separate entity). The qualified investment or underlying security acquired by the SPV thus collateralises the note or CDS. Single-name CLNs reference one Reference Entity, whereas multi name CLNs can reference multiple Reference Entities and often form repackaging programmes. CLNs are thus dependent upon the performance of each Reference Entity under its obligations on the qualified investment or underlying security. A default of any Reference Entity or its failure to perform its obligations on the qualified investments or underlying security can lead to a default on the CLN, if no such credit event occurs it is expected that a CLN will be redeemed in full upon its maturity date. Typically, CLNs and Repacks de facto include several risk presenting entities / counterparties that perform supportive functions to the transaction such as the account bank or swap counterparties.


Repacks or Repackaging vehicles can apply to a number of various structured instruments. Typically, a Repack involves the issuance of securities by a special purpose vehicle (SPV) in order to purchase, or provide credit protection for, a bond, note, loan or other financial assets.


This should be read in conjunction with ARC’s Global Structured Finance Criteria.

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