These criteria provide S&P Global Ratings' methodology and assumptions for rating asset-backed commercial paper (ABCP) and medium-term note (MTN) issuances by special-purpose entity (SPE) conduit issuers. For information about key changes, the impact on ratings, and superseded criteria, see "Updated Global Asset-Backed Commercial Paper Criteria Published," also published on March 22, 2024.

METHODOLOGY

Framework Overview

ABCP conduits (also referred to as programs) exist to issue short-term paper to finance diverse pools of assets. ABCP (which we also refer to as "CP") can be paid with rollover proceeds--the proceeds of newly issued ABCP or payments from the underlying assets. Simultaneously the proceeds of collections from matured assets can be reinvested into newly generated receivables. Payment of maturing commercial paper depends on newly issued CP, and if conduits are unable to issue new CP, a third-party liquidity support provider is needed to pay the maturing CP. The liquidity provider is also available to cover timing mismatch between collections on the underlying assets and the maturity of CP. This reliance creates a link to the credit risk of the liquidity provider. The liquidity provider or other third parties (together, the support providers) might also support the conduit by taking other risks, such as credit risks or legal risks of the assets. Therefore, we typically link the rating on ABCP issuances to the ratings on those support providers, which is a key difference compared with typical term securitizations. The ABCP issued can take a variety of forms, including traditional discount, interest bearing, fixed, floating, callable, puttable, and extendible notes. See Appendix D for a glossary of technical terms.

These criteria apply to bankruptcy-remote ABCP conduits that utilize full support, partial support, and/or match-funded support (also referred to as fully supported, partially supported, or match-funded conduits). The criteria don't apply to CP issued by corporate or municipal entities.

For more details on fully supported funding formulas, please refer to Appendix A.

When we assign ratings to ABCP, the ratings apply to all issuances of ABCP that comply with a program's restrictions and issuance tests. We typically do not assign ratings to each individual maturity given their short tenors. In these criteria, the terms "ABCP" and "CP" also include MTN.

Our ratings on ABCP issuances reflect our opinion of the likelihood of full and timely repayment. Our methodology is predicated on the risks inherent in the variety of factors that contribute to the ABCP rating, including:

• Conduit's investment and support guidelines;
• Ratings on support providers that directly support the repayment of ABCP;
• Ratings on entities providing program-wide credit support, if any;
• Ratings on entities serving as account and/or hedge providers; and
• In partially supported transactions, our view--either as a rating or a liquidity-enhanced credit analysis (LECA; see also the glossary in Appendix D)--of the credit quality of financed assets (see Section 4 for an overview of the risks unique to partially supported structures).

Our ratings apply to all issuances of outstanding and potentially issued CP, meaning we do not discontinue our ratings while no CP is outstanding. As such, if there are sufficient mitigants in the documents--such as issuance tests requiring support providers in place with a rating commensurate to CP--we may issue a rating in advance of CP issuance, even if no support provider is in place.

In these criteria, "rating" (for example, the rating on a support provider) is a reference to S&P Global Ratings' credit rating opinion on the entity. When relevant, and if only a long-term rating is available, we may infer a short-term rating by applying our criteria for linking long-term and short-term ratings (see the Related Criteria section).

When new assets are financed in a conduit, we may review the particular risks in a given transaction to ensure it would not introduce additional risks not captured in the ABCP rating. These reviews can be before (prior review) or after (post review) the asset's introduction.

With respect to their structure, ABCP conduits can be categorized into three general types:

Table 1

Types Of ABCP Conduits
Conduit type	Characteristics
Single-seller	-- The originator has significant control over the pool and typically bears the administration costs. -- A typical single seller conduit would be set up to finance the receivables of a single originator.
Multi-seller	-- A multi seller conduit finances many originators by combining their assets into one, diverse portfolio. -- Program administration is key in ensuring the conduit operates properly, including mitigating any operational risk. -- Various third-party support providers may be contracted to provide support on various financings. -- The variety of asset sellers exposes the conduit to portfolio and cash flow risks that program administrators must also manage. -- A typical multi-seller conduit would be set up by a bank to finance a variety of assets, either originated by its corporate clients (trade receivables, lease receivables) or other assets like ABS bonds.
Other/derivative-backed	-- Often established by non-bank sponsors, these conduits are primarily supported by derivative agreements such as repurchase agreements (repo conduits), loan agreements (as seen in collateralized CP programs), or total return swaps. -- These conduits are typically considered fully supported. -- These conduits often serve specific investor needs such as collateral borrowing or short-term equity exposure. -- Derivative agreements are typically secured by underlying collateral, which makes program administration crucial to monitoring and mitigating this risk. However, repayment of ABCP generally relies on proceeds under the derivative agreement. -- A typical derivative-backed conduit would invest in assets like equities, treasuries, or other assets while the conduit enters into a derivative contract with a third party.

For examples of conduit structures, please refer to Appendix C.

When we provide overviews of risks and mitigations commonly assessed in these criteria, those lists represent the most common risks and mitigants observed. These lists are not intended to be exhaustive, as other risks might be present in a specific conduit. We also analyze other proposals to determine if, in our view, those mitigate the risks.

Section 1: Rating Linkages

Ratings assigned to the ABCP address the payment of principal and interest, if any, due on ABCP maturity. For redeemable ABCP (callable, puttable, or extendible), it also reflects the likelihood of payment on the call, put, or extension date. When risks are mitigated, the rating assigned typically follows the weak-link approach, meaning it's the lower of:

• The minimum ratings as documented in the conduit's guidelines and restrictions on support provider ratings and
• The assigned ratings to the various support providers, including account providers, on a given transaction within the conduit.

Typically, ABCP ratings are linked to the public issuer credit rating (ICR) on the support providers. The applicable rating could also be the resolution counterparty rating (RCR), if relevant, depending on the obligation of the support provider. An RCR is a forward-looking opinion of the relative default risk of certain senior financial institution liabilities that may be protected from default in an effective resolution process. (see Section 6 in "Financial Institutions Rating Methodology"). Secured liabilities--such as repurchase agreements and collateralized derivatives--would typically qualify for an RCR in most jurisdictions if the counterparty's obligations are fully collateralized. In considering whether a support provider would qualify for its RCR to be applicable, we will review any collateralization provisions under the contract and the frequency of the mark to market. To the extent any unsecured exposure to the counterparty remains, the ICR would generally be the applicable rating type.

Because ABCP conduits are actively managed, our ongoing surveillance process contemplates communication with the conduit administrator and the potential for mitigating actions by the administrator to limit or eliminate exposure to a linked rating that is lowered, which might enable the ABCP rating to remain stable. If the conduit administrator provides such a plan and we deem it sufficient to mitigate the exposure (see Section 3 below), we might not lower the ABCP rating.

Conversely if the rating on a support provider is raised above the ABCP rating, the higher rating might not always pass through to ABCP despite the linkage. This is because we apply a weak-link approach, and so conduit limitations on minimum ratings for potential support providers could still constrain the overall rating.

Section 2: Legal Risks

The primary legal risks we factor into our analysis are:

• Enforceability of support facilities with respect to the program;
• Preference or clawback risk that the ABCP conduit could be subject to a preference claim relating to the transfer of assets supporting the ABCP; and
• Review of formation documents and ownership structure to deem the program as bankruptcy remote in the applicable jurisdiction.

To preserve the bankruptcy-remoteness of the program, we also review non-petition and limited-recourse provisions that survive the termination of support agreements, as well as any transaction-level legal risks that could affect the program.

Legal Risks At The Program Level

Legal Risks At The Transaction Level

Section 3: Program Administration And Operational Risks

Program administration

The initial structural review of ABCP conduits is complemented by ongoing management reviews and surveillance. These functions are integral to the rating process, serving to monitor the quality and performance of the financed or purchased assets. This process ensures the sustained integrity of the assigned ratings.

Administrative Risks

Relevant entities

Conduit administrators and trustees are considered administrative key transaction parties (KTPs) under our operational risk criteria (see the Application Of Other Criteria section). Our analysis assesses their ability to operate in accordance with program documentation. It also considers both administrators and any sub-administrators. Among other duties, our analysis focuses on the administrator's capabilities in the areas of:

• ABCP note administration: Communication with issuing and paying agents (IPAs) to issue notes in accordance with program tests, calculating deficiency amounts, and ensuring the IPA realizes funds under liquidity in a timely manner.
• Loan administration: When relevant, coordinating loans and payment terms with borrowers.
• Collateral administration: Ensure consistency with any eligibility requirements for potential collateral and the orderly disposition of collateral following an event of default.
• Investments: Ensure consistent investment of excess funds in accordance with program limitations.
• Record keeping and notices: Ensure proper communication with transaction parties upon various events and prepare proper surveillance reporting on conduit investment and asset performance.

Initial rating issuance

During our new rating process, we review the operative documents to assess how the conduit will operate on an ongoing basis and if potential risks are mitigated.

Operative document risks

Program-specific risks

Risks upon introduction of a new transactions into the conduit

We review transaction-level documents to assess if ongoing conduit financings expose ABCP holders to risks not contemplated in the assigned rating linkages:

Program wind-down

Program underwriting

The conduit's underwriting guidelines are set in its credit and investment policy, which is typically aligned with the financial institution's policies.

When assessing underwriting risk, we review the program administrator's evaluation of seller risks--including overall creditworthiness and product and performance risk, among others--on each asset originator. Questions covered during the administrator review include, but are not limited to, the following:

• What does the credit and investment policy require the program administrator to do?
• Who performs the audits and when?
• Is there a procedures manual, and does every person on the administration team have a backup?
• Is the priority of payments clearly identified for the program administrator?
• Are there specific pool performance requirements?
• Are there separate credit, surveillance, and auditing departments that serve as quality-control functions and have reporting lines separate from new business development?
• What are the events that compel the program administrator to stop purchasing assets and cease issuing CP?

The management review also includes a demonstration of the information system in place to monitor each seller's performance.

Surveillance

Over the life of the conduit, we review material changes to the conduit (such as new transactions the conduit finances, amendments to existing transactions, changes to program documents, and changes to key transaction parties or support providers) to ensure that there are no new risks that could adversely affect the rating on the ABCP.

Types of reviews.  For all such changes, we expect that the administrator/sponsor to provide us with written notice prior to such changes taking effect. We categorize our reviews as follows:

Prior review.  We use "prior-review transactions" to describe transactions that we expect will not be funded by the conduit until S&P Global Ratings has reviewed the proposed changes. All new transactions will be classified as prior-review transactions unless we determine, following the conduit administrator/sponsor's request, that the transaction is eligible for post-review.

Post review.  We use "post-review transactions" to describe transactions for which we complete our review of the transactions after they're funded.

We determine eligibility for post-review based on the following characteristics:

• Eligible asset types: The transaction involves common and frequently securitized asset types, such as prime auto loans, credit cards issued by master trusts with S&P Global Ratings rated term issuances; equipment loans and finance leases, trade receivables; Federal Family Education Loan Program (FFELP) student loans (including refinancings); or transactions that are fully supported and where the support agreement or "template document" has been reviewed by S&P Global Ratings and the proposed transaction reflects only non-material changes from these previously reviewed template documents.
• Administrator/sponsor underwriting and administrative experience.

Minimum data requirements.  Partially supported ABCP assets (see Section 4) must be monitored to ensure our liquidity-enhanced credit analysis (LECA) remains consistent with the rating assigned to the ABCP. In addition, we require routine conduit reporting items to maintain our review on the overall conduit administration.

Action plan reporting.  Conduits are designed to be flexible and adaptive to changing conditions. Rating changes and CreditWatch placements on support providers, or a drop in available PWCE below the projected portfolio loss amount, could result in subsequent rating changes on the ABCP, subject to our review of the administrator's action plan, if any. We evaluate action plans on a case-by-case basis. The three key elements of an action plan address:

• The feasibility of completion;
• The timeliness of completion; and
• The effectiveness in resolving the risks to the conduit (such as in mitigating exposure to the affected support provider).

The following are examples of action plan features that may result in us not changing the rating on the ABCP:

• The plan is delivered within five business days of the rating action or receiving notice from us that PWCE is below the projected portfolio loss amount, and the administrator agrees to implement the plan within 30 calendar days from when it was delivered.
• The details of the plan provisions are sufficiently explicit such that the plan can be easily implemented.
• The plan has received approval from the appropriate levels of management of the relevant parties.
• If the plan contemplates replacing the affected support provider, the new provider has indicated its willingness and ability to assume the relevant obligations within the plan's timeframe.
• If the plan contemplates the affected support provider's commitment being drawn to cash and such commitment amount is substantial, the affected support provider has the ability to cover this obligation within the planned timeframe.
• If there's a negative CreditWatch placement, the plan can be executed if we downgrade the support provider.
• If the plan was to provide additional credit enhancement, the credit enhancement provider had indicated its willingness and ability to assume the obligation within the plan's timeframe.

When the administrator doesn't provide an action plan, or the action plan isn't satisfactory, we apply the rating on the support provider to the outstanding ABCP if that rating is lower than the minimum rating for a support provider, according to the conduit's documents. If the rating on the support provider is placed on CreditWatch, we put the ABCP rating on CreditWatch unless the short-term rating will not be affected by the CreditWatch resolution.

Section 4: Sufficiency Of Support

This section focuses on the risks and common mitigants relating to the full and timely payment of the rated ABCP. ABCP will typically be paid with the rollover proceeds of newly issued notes. We assess whether the paying agent will draw or otherwise realize sufficient funds under a support facility to ensure full and timely payment of the ABCP when rollover proceeds are insufficient and that bankruptcy or failure to pay of the support provider are the only circumstances under which the paying agent will not realize properly drawn funds. Our assessment of support sufficiency is based on the terms in the conduit program documents, available support facilities, and potential considerations described in Section 2.

Liquidity facilities

We see many forms of agreements that function as liquidity facilities, such as liquidity agreements, letters of credit, loan agreements, and derivatives such as repurchase agreements and total return swaps. While each agreement may have unique provisions, we assess the fundamental risks elaborated below, regardless of the form liquidity support may take. Fundamental assumptions of our liquidity review:

• Only committed facilities are eligible for a rating linkage;
• Any unhedged or otherwise unmitigated exposures, such as foreign exchange risks or interest rate risks, will impair payment on ABCP;
• Senior expenses that are not sized, capped, or otherwise covered will impair payment on ABCP; and
• The conduit will issue to the maximum commitment amount under a facility.

Sufficiency of support agreements: risks and mitigants

Document-Related Timing Risk

Sufficiency Of Principal And Interest Coverage On ABCP

Coverage For Puttable/Callable Issuances

Coverage For Extendible CP Issuances

Interest Rate-Related Risks

Potential Reduction Of Liquidity Funds

Termination events

Derivative Termination Events And Payments

Consideration of liquidity funding-outs

We expect a facility to fund fully and on a timely basis to its maximum commitment amount. Some facilities may contain certain events in which they will not fund ABCP (so-called funding-outs). We consider the following funding-outs consistent with our linkage approach, as they're already factored into our ABCP rating.

Funding-outs in support agreements.  The liquidity support agreement specifies a bankruptcy or insolvency-related event occurring with respect to:

• An ABCP SPE that we view as bankruptcy-remote, such as the borrower under the liquidity support agreement or the ABCP issuer (if the borrower is not the ABCP issuer).
• A specified counterparty with credit quality that we consider commensurate with the rating on the ABCP notes, like the credit enhancement provider.

Typical bankruptcy or insolvency-related events are:

• Entity is insolvent, within the meaning of applicable local law;
• Entity has voluntarily commenced a proceeding or filed a petition under any bankruptcy, insolvency, or similar law seeking its dissolution, liquidation, or reorganization;
• Entity is wound-up or dissolved, or a receiver (other than a receiver appointed pursuant to the transaction documents), trustee, liquidator, examiner, sequestrator, or similar officer is appointed over it or all or a substantial part of its assets;
• Entity has an involuntary proceeding commenced or filed against it under any bankruptcy, insolvency, or similar law seeking its dissolution, liquidation, or reorganization without regard to any applicable grace period; or
• It becomes illegal for the liquidity support provider to perform its obligations under the transaction documents, or a court, governmental authority, agency, or similar finds that any material provision of the liquidity support agreement is not valid and binding on the borrower or the ABCP issuer, as the case may be.

We will evaluate any funding outs not specified above on a case-by-case basis.

Funding-outs in ABCP operative documents.  An event of default occurs with respect to the ABCP issuer relating to its bankruptcy or failure to pay ABCP. Events of default we don't consider addressed in the rating on the ABCP include, but are not limited to, failure to pay fees under support facilities or other transaction documents, breaches of representation, or breaches of covenants. Our analysis of such liquidity funding outs will consider any remedies, cure periods, or additional conditions, such as the commencement of enforcement proceedings pursuant to the transaction documents.

Match-funded ABCP

Match funded ABCP refers to ABCP issued against a specific asset or set of collateral.

Program-wide credit enhancement

PWCE is a fungible layer of additional credit enhancement typically provided to a partially supported ABCP conduit by a third party (often an affiliate of the conduit's sponsor/administrator) when the conduit has multiple independent credit risk exposures. PWCE is also calculated for fully supported or match-funded conduits with multiple support providers or assets, respectively, where the threshold for PWCE being calculated depends on certain conditions being met (see "Calculation of PWCE" below). PWCE can be used to cover losses if one of the exposures defaults because, for example, the asset-specific credit enhancement is depleted or one of the support providers defaults. PWCE may also be used to bridge the credit gap for exposures with credit quality that's not commensurate with the conduit's ABCP rating for partially supported conduits.

Typical credit risk exposures for conduits are:

• Assets, such as pools of receivables or bonds. These could be rated by us or subject to a LECA.
• Fully supporting liquidity providers. In this case, the conduit is exposed to the credit risk of the support provider rather than to that of the underlying asset.
• Counterparties providing hedging, liquidity, and credit support through derivative financing arrangements (repos, swaps, etc.).

Because the PWCE support provider could take credit losses on the conduit's exposures, we believe it's incentivized to ensure that the sponsor/administrator effectively underwrites each exposure and manages the credit risk in the conduit's portfolio.

We generally will not rate ABCP higher than the rating assigned to the PWCE support provider because of the risks that PWCE typically addresses. Further, we believe PWCE support should be available and inherently liquid (cash, letters of credit, or comparable instruments) and sufficient to cover losses that are projected to exceed asset-specific credit enhancement levels.

Calculation of PWCE.  PWCE is zero if all of the following conditions are met:

• The number of exposures is less than or equal to the applicable threshold (see "Calculating the number of exposures" below) which is dependent on the ABCP tenor restrictions.
• Exposures are rated above or commensurate with the ABCP; none of the exposures are subject to a LECA.

For example, PWCE would be zero for a fully supported derivative-backed conduit with an ABCP tenor restriction of up to 180 days with potentially up to 25 rated support providers (such conduits don't have any LECAs).

However, PWCE would be greater than zero if the above conditions are not met. In other words, even if there is a single LECA in a partially supported conduit, then PWCE would be calculated. Or if there are 11 support providers for a fully supported conduit that can issue ABCP for up to 397 days, the PWCE also would be calculated.

Calculating the number of exposures

The total number of exposures in the portfolio is an input for the determination if PWCE is calculated, as well as for the PWCE calculation itself (see below). In both cases, we compare this number against the applicable threshold. The applicable threshold depends on the maximum maturity of the ABCP (as set in the program documentation) and on the number of exposures subject to LECA in the portfolio. As the number of exposures increases, reducing tenors mitigates the increased risk of an exposure default based on historical default performance of rated securities. The threshold for a given conduit is determined as shown in the following table.

Table 2

Exposure Thresholds
Conditions	Applicable threshold (number of exposures)
-- ABCP can be issued with a maximum maturity of up to 180 days -- Not more than 10 exposures are subject to LECA	25
-- ABCP can be issued with a maximum maturity between 181 and 270 days -- Not more than 10 exposures are subject to LECA	15
If the conditions for thresholds of 25 or 15 are not met (ABCP can be issued with a maximum maturity of up to 397 days or more than 10 exposures are subject to LECA)	10

When calculating the number of exposures, we treat exposures as follows:

• Exposures that are fully supported by the same counterparty (or its affiliates) are aggregated and counted as a single exposure unless an asset is analyzed without regard to the rating on the counterparty providing the full support. An example is a full wrap by a bond insurer. In such a case, we'd count the asset as an additional exposure. When we aggregate exposures supported by a counterparty and its affiliates, if the ratings on those differ, we consider the lowest rating available among those entities.
• Exposures that are fully supported by the PWCE provider or a liquidity provider that's affiliated with the sponsor/administrator are excluded from the exposure count (and all projected portfolio loss amount calculations) if the rating on the ABCP is weak-linked to the rating on that provider.
• Assets that are temporary investments of cash collections are excluded from the exposure count if the investments mature prior to the earliest maturing ABCP and have credit ratings that are commensurate with the rating on the ABCP.
• Multiple assets that are backed by--or represent interests in--the same receivables pool may be aggregated and counted as a single exposure. For example, if the conduit purchases the entire balance of senior and subordinated debt issued by the same issuer and whose rating is commensurate with or higher than the ABCP rating, then we deem these as a single exposure. Or for a fully supported conduit with multiple support providers, if a support provider supports multiple assets, then the exposure count for those assets is one.

Minimum total PWCE calculation

Under the criteria, we determine if the support provided to a conduit is sufficient to cover the minimum total PWCE. This minimum total PWCE is the sum of:

• Losses that, in rating-specific stress scenarios, are projected to exceed exposure-specific credit enhancement levels (the projected portfolio loss amount) and
• Any previous exposure-specific PWCE allocations.

Calculations of the projected portfolio loss amount and PWCE allocations are based on a conduit's funded commitment amounts (the invested amounts, as opposed to the maximum commitment amounts). The amount of PWCE available to a conduit is the total PWCE provided minus all previous allocations of PWCE. Examples of previous PWCE allocations are ones specifically for an asset based on the results of a LECA or to bridge the credit gap for an exposure with credit quality that's not commensurate with the rating on the conduit's ABCP. (See Appendix B for examples of projected portfolio loss amount calculations.)

Calculation of projected portfolio loss amount.  The projected portfolio loss amount is the higher of the:

• Largest exposures net loss test and
• PWCE floor.

These two components are determined as follows:

The largest exposures net loss test is based on the exposures category and the net loss per exposure or invested amount per exposure. Table 3A shows the calculation of the largest exposures net loss test, depending on the total number of exposures in the portfolio relative to the applicable threshold (see above Calculating Number of Exposures):

The PWCE floor is based on the exposures category and the invested amount per exposure. Table 3B shows the calculation of the PWCE floor, depending on the total number of exposures in the portfolio relative to the applicable threshold (see "Calculating the Number Of Exposures" above):

Exposure category, net loss assumptions, and invested amounts percentage.  Our calculation of PWCE is based on the exposure categorization and our net loss assumptions or the invested amounts. We apply our liquidity-enhanced recovery rate (LERR) assumption when calculating the net loss assumption per exposure. We use a 75% recovery rate for exposures that meet all of the following conditions:

• Liquidity funds for an amount at least equal to performing or non defaulted assets
• Exposure represents the senior most interest in the receivables pool (not subordinated to any other asset/interest)
• Exposure's credit quality is at least commensurate with the ABCP rating, or subject to a LECA without regard to any additional support (bond insurer or full liquidity support to assess the credit quality of the exposure)

For exposures that don't meet all of the above conditions, the recovery rate assumption is 0%. An example is fully wrapped transactions where we have not analyzed the underlying assets and give no recovery benefit in case of the support provider defaulting. Another example is when the transaction is subordinated to other interests.

When calculating the projected portfolio loss amount, we treat exposures as follows:

• If an exposure doesn't have an S&P Global Ratings rating, a LECA with ongoing surveillance may be used in place of an equivalent rating, provided the analytical process is consistent with that of a rating analysis. PWCE may be allocated specifically for an exposure based on the results of a LECA.
• A fully supported exposure may be analyzed without regard to the rating on a supporting party if a rating analysis or LECA has been performed and the supporting party is not the PWCE or a liquidity provider affiliated with the program sponsor/administrator. In this case, for the purposes of calculating the asset's projected net loss and the largest asset net loss test, the asset is analyzed separately from other assets that are fully supported by the same supporting party. We'll count this transaction as a separate exposure with a 0% recovery rate.

Monitoring the projected portfolio loss amount and available PWCE.  We expect conduit administrators to either calculate the projected portfolio loss amount and available PWCE on an ongoing basis or establish investment guidelines that would result in an available PWCE that is at least equal to the projected portfolio loss amount.

If a conduit's available PWCE is below the projected portfolio loss amount, we'll typically notify the administrator/sponsor of a potential rating action on the conduit's ABCP. If a conduit administrator/sponsor communicates an action plan to cure a PWCE shortfall, we may consider the plan in our rating analysis (see "Action plan reporting" above).

Considerations for partially supported issues

Partially supported ABCP has liquidity support. However, investors might still be exposed to losses on the underlying receivables if these losses exceed the pool-specific enhancement and the fungible partial enhancement provided at the program level in the form of PWCE. We conduct LECAs on the underlying assets (typically commensurate with the rating on the ABCP) to address these losses.

All new transaction pools entering the partially supported conduits are subject to review by S&P Global Ratings. New seller reviews are typically based on factors such as the:

• Conduit's credit and investment policies (reflecting the types of assets to be funded in the conduit);
• Credit quality of assets;
• Asset-specific credit enhancement--whether fixed or dynamic (includes overcollateralization, any reserves or external guarantees);
• Liquidity funding formulas (asset based or capital based);
• Loss horizon (short tail or long tail);
• Transaction's trigger events;
• Any specific transaction-level legal or other risks and the mitigants (see Section 2); and
• Interest and foreign exchange risk coverage.

Credit quality of assets.  Each pool financed by the conduit is expected to be structured to a credit quality level commensurate with the ABCP rating, which includes funding rated assets. For example, a 'AA-' rated security is commensurate with an 'A-1+' ABCP rating. Some conduits structure their pools at a rating level below the conduit's CP rating. The credit gap between the pool assessment and the CP rating may be mitigated by structural features at the pool level or the conduit level, or by program-wide enhancement.

Pool-specific and program-wide enhancement.  The total amount of pool-specific enhancement is based on the eligible receivables (see "Examples Of Risks And Mitigations For U.S. Partially Supported Transactions" below), a multiple of the pool's historical loss experience, expected pool performance, obligor concentrations, and the type of receivables. The pool-specific enhancement is designed to cover losses stemming from the specific pool, while program-wide cover losses over the fungible pool of all assets funded in the conduit.

Determining pool-specific enhancement and borrowing base.  Pool-specific enhancement, pool wind-down triggers, program wide enhancement, CP issuance triggers, and the put to liquidity trigger are evaluated because they should all work to mitigate the credit risks associated with receivables financed by ABCP conduits. S&P Global Ratings focuses on the following factors when analyzing pool-specific enhancement:

• Asset type and characteristics of the receivables;
• Eligible receivables;
• Pool-specific enhancement and what it covers;
• Type of enhancement, whether fixed level or dynamic;
• Whether the enhancement is sized to cover losses over the life of the asset (long-tail risk) or the tenor of the liability (short-tail risk; see "Short-tail versus long-tail risk"; and
• Any risks covered by liquidity.

Generally, we analyze loan portfolio performance data of at least three years. While the process of determining recommended enhancement levels varies by asset type, the general approach is to cover a multiple of historical losses over the loss horizon. The multiple is based primarily on the conduit's ABCP rating and the asset-specific criteria (see "Related Criteria"). The loss horizon is the period when the conduit is exposed to credit risk on the underlying assets which may be over a short tail or long tail.

For any transaction with a revolving period, including warehouse transactions, analyzing credit support also involves assessing receivables eligibility criteria. In a revolving transaction, there is no fixed set of receivables because collections from old receivables are constantly being reinvested in new ones during a period typically referred to as the revolving period. Therefore, in a revolving transaction, there are several risks that aren't found in an amortizing transaction. First, the collateral mix may change as the originator enters a new market or business. Second, the originator's underwriting criteria may change in a way that negatively affects the credit quality of the purchased assets. For this reason, all revolving transactions have eligibility criteria and excess concentration limits to a defined set of receivables.

Eligibility requirements are specific to the individual transaction and asset type. If the pool of eligible receivables falls below the conduit's net investment (amount paid by the conduit to the seller) plus the required reserves and is not topped up within a specified cure period, the transaction will enter an early amortization period, thus resulting in a borrowing base breach. No new ABCP is issued against this pool upon the borrowing base breach or a similar trigger that leads to the pool amortization.

Short tail and long tail.  Some transactions are structured so that liquidity funds and repays ABCP as it matures upon a borrowing base breach, or there's an immediate put to liquidity that creates a shorter loss horizon (a short tail). In other words, because no new ABCP is issued and there is no purchase of new receivables after the amortization trigger (borrowing base in the example above), the assets are put to the liquidity provider. Thus, ABCP investors are exposed to losses only during this short tail period as the liquidity bank purchases the assets from the conduit after the amortization trigger. Under this scenario, pool-specific credit enhancement is sized to cover losses over a short tail.

Other transactions are structured such that upon the borrowing base breach or an amortization trigger, the conduit can continue to roll and pay ABCP as the eligible receivables continue to pay down after a pool amortization date. No new ABCP is issued to reinvest in new receivables. Under this scenario, the pool-specific credit enhancement is sized to cover losses over the life of the asset.

Chart 4 below shows an example of a short tail versus a long tail. The loss curve as shown represents expected losses of 20% to be incurred in an 'AA' stress scenario. However, these losses are incurred over a 36-month period as the pool liquidates. If the ABCP is repaid earlier than 36 months or in six months, then it will not be exposed to all losses during the amortization period. For example, if liquidity is structured to purchase assets upon maturity of existing ABCP upon a borrowing base breach, the maximum tenor of ABCP issued is assumed at 180 days, and no new ABCP is issued upon a borrowing base breach, then pool specific credit enhancement may be sized at 4%, which is less than 20% over a long tail horizon.

Look see risk.  The conduit administrator may not know each day how a transaction is performing because the servicer may not report receivables performance daily. If the conduit receives pool performance reports monthly, there is a risk it could continue to invest in receivables for an entire month while the transaction is under-enhanced. The risk of being under-enhanced due to reporting lag is referred to as "look-see risk." As a result, ABCP transactions where servicer reports daily can have lower enhancement levels than transactions that receive compliance reports less frequently.

Enhancement gross up.  When pool-specific enhancement takes the form of receivables overcollateralization, losses will also occur on the overcollateralization amount. Therefore, the enhancement percentage is multiplied by the receivables balance as opposed to being multiplied by the amount the conduit ultimately advances to the asset originator. If the enhancement is a percentage of the amount the conduit advances to the asset originator, the enhancement is grossed-up to account for the expected losses on the overcollateralization amount.

The following is an example of a gross-up reserve:

• Eligible receivables balance = $110;
• Required loss reserve percentage = 10% of receivables balance ($11);
• Amount of CP that can be issued = $110 - $11 = $99;
• To issue $100 of CP, more than $110 of receivables would be required, as the balance of $110 can experience 10% losses ($11);
• To be able to issue $100 of CP, the loss reserve of 10% needs to be grossed-up as follows: required loss reserve as a percent of net investment = 10% / (100% - 10%), receivables balance = $100 + $11 = $111; and
• CP that can be issued = receivables balance - 10% of receivables balance such that $111 - (10% x $111) = $100.

Liquidity support.  Liquidity support is an integral part of ABCP conduits. The liquidity funding formula is among the most important aspects of the document review. The funding formula determines what the liquidity facility is willing to fund. Because most programs have assets and liabilities that are not match funded and lack minimum ABCP maturity restrictions, liquidity facilities are necessary to ensure timely repayment to ABCP investors. Risks assumed by liquidity may include asset-specific legal risks or timing mismatches by absorbing the risk that receivables cash flows could be impaired by an automatic stay in the event of an asset originator bankruptcy. Although liquidity banks typically fund for non-defaulted receivables, liquidity may also protect investors from asset-specific risks like dilutions, recoveries, and comingling risk (see examples below). Therefore, a detailed review of liquidity facility documentation is necessary and will affect the evaluation of the adequacy of pool-specific and program-wide credit enhancement levels.

Liquidity support may be in the form of either an asset purchase agreement or a loan agreement. Under the purchase agreement, the liquidity providers purchase non-defaulted receivables when liquidity funds. Because assets are purchased out of the conduit, an asset purchase agreement may mitigate certain operational risks. Under the loan agreement, liquidity banks lend money to the conduit and are secured by the cash flow from the underlying receivables.

Liquidity funding formula.  Partially supported liquidity funding formulas reduce the amount they fund to the extent defaults are realized on the related asset. Said another way, the liquidity provider's obligations to fund are limited to the amount of good (performing) assets and the amount of available asset or program level enhancement. Transactions may define such nonperforming assets in various ways, such as:

• Defaulted assets;
• Charged off assets; and
• Asset-specific credit enhancement has been depleted to zero.

Liquidity providers may limit their funding commitment based on an asset-based formula or on a capital-based formula. The asset-based formula typically includes all non-defaulted receivables. Under the capital-based formula, liquidity providers fund for the amount that the conduit advanced to the originator minus defaults in excess of the required enhancement. The funding formulas are also intended to cover interest rate the conduit owes on the ABCP, including any accrued amounts due at maturity. Table 4 provides examples for the two types of formulas and how the resulting liquidity draw is calculated in different loss scenarios.

The assumptions used in Table 4 are:

• Asset pool = $100 receivables
• Credit support (or pool-specific enhancement) = $20
• CP outstanding (or capital) = $80
• Nonperforming (or defaulted) assets = $19 in Scenario 1 and $21 in Scenario 2

Common risks and mitigants.  The following table provides examples of typical risks and mitigations commonly assessed for partially supported transactions in U.S. conduits.

Examples Of Risks And Mitigations For U.S. Partially Supported Transactions

Examples Of Risks And Mitigations For U.S. Partially Supported Transactions: Trade And Consumer Transactions

Examples Of Risks And Mitigations For U.S. Partially Supported Transactions: Auto Lease Transactions

Last good report

The monthly report that is delivered prior to the occurrence of the borrower's ability to meet the asset to liability test (for example, a borrowing base breach or failure to pay principal & interest on notes issued by the trust) that leads to a put to liquidity is deemed the last good report. This report ensures that credit enhancement or reserves in the transaction are topped up. Typically, only the defaulted receivables are reduced since the last good report.

Prior to the occurrence of the borrower's ability to meet the asset to liability test and if liquidity is an asset-based funding formula that only drops for defaulted receivables, various risks are mitigated. For example, collections are sufficient to pay any expenses in the waterfall senior to principal payments, and dilutions, rejected receivables, and receivables subject to PBGC lien are covered as well. Any reductions of defaulted receivables since the last good report are limited to purely obligor credit defaults, which are mitigated by topped-up credit enhancement in the transaction and reviewed under the asset criteria.

Section 5: Application Of Other Criteria

Specific considerations are relevant when applying other criteria that cover third-party supported transactions. The following provides examples of how we apply operational risk, our global cash flow, counterparty risk, and temporary investment criteria.

Under our operational risk criteria, we assess whether the structure explicitly describes and assigns responsibilities that, if not performed as agreed upon by key transaction parties (KTPs), may adversely affect the rating. An example of how we apply our operational risk criteria to specific aspects of structures analyzed under these criteria is the risk that the KTP resigns without an appropriate replacement. In our analysis, we assess the requirements under which the KTP can resign and responsibilities are transferred to a new KTP, including any indemnity requirements prior to resignation.

To assess the sufficiency of support provided both in fully supported and partially supported programs, we analyze its flow of funds under our global cash flow criteria. If cash flows (from either the assets or support agreements) are not sufficient to cover the full principal and accrued interest due on ABCP, this may result in a shortfall to ABCP. Similarly, any amounts pari passu or senior to ABCP interest and principal (for example uncapped fees, indemnifications, derivative-related breakage costs) can potentially reduce cash flow to repay ABCP. We assess whether any interest rate, currency mismatch and/or floating rate risk including any senior expenses to ABCP payments are mitigated, e.g., are either capped, subordinated or otherwise addressed through structural elements both at the program level and, for partially supported conduits, at the transaction level.

The counterparty risk framework assesses the creditworthiness of third-party obligations to either hold assets (including cash) or make payments that support the ABCP. Counterparty risks include exposures to institutions that maintain key accounts and providers of derivative contracts, such as interest rate and currency swaps, including custodians (see Section 3 for derivative-related risk). Our analysis considers both the type of dependency and the rating on the counterparty for each counterparty relationship in a transaction. In addition, commingling of funds may pose a risk upon a counterparty's insolvency when collections from assets are held by that counterparty or have been deposited into other transaction bank accounts and not been remitted to the conduit account to pay down ABCP. We assess the risk on how collections held outside the conduit account are mitigated. For example, the support provider can front for all collections held outside the conduit account, or all collections may be swept overnight into an account held by a counterparty that has ratings at least commensurate with the ratings on the ABCP.

The global investment criteria establish the maximum potential rating that could be assigned to the ABCP based on the rating and maturity of the temporary investments.

In addition to the above criteria, we use the global derivative agreement criteria when the ABCP issued by the conduit is supported by derivative agreements. For partially supported transactions, we apply our asset-specific criteria, which determine the risk assessments for transactions funding the specific assets.

APPENDICES

Appendix A: Examples Of Fully Supported Funding Formulas

Liquidity facility agreement

Funding formula = ABCP principal + interest payments

Under a liquidity facility agreement, the liquidity facility provider is obligated to pay an amount that will match the notional amount of ABCP notes issued plus their related interests. We expect this amount to be sufficient to also cover payments that are senior to both ABCP principal and interest payments in the waterfall.

Derivative examples

ABCP-backed by derivatives, such as total return swaps, repurchase agreements and/or securities lending agreements have unique funding formulas that are typically, but not always, driven by the initial value of the referenced asset.

Total return swap (TRS)

Funding formula = notional amount + interest portion

Under a total return swap, the ABCP-sponsored SPV hedges the market risk of a refenced asset (such as U.S. Treasury Obligations or a basket of equities). The TRS counterparty is obligated to pay the notional amount, which relates to the initial value of the referenced asset and an interest portion (sometimes referred to as the fixed amount). The notional amount will match the notional amount of ABCP notes issued. The interest portion should be sufficient to cover the ABCP costs of funds.

Repurchase agreement

Funding formula = repurchase price

Under a repurchase agreement, the counterparty (the seller) sells a referenced asset (such as U.S. Treasury obligations) to the ABCP-sponsored SPV (the buyer) at an agreed upon value (the purchase price). Upon termination of the repurchase agreement, the seller will repurchase the referenced asset from the buyer at an agreed upon value (the repurchase price). The difference between the repurchase price and the purchase price (the price differential) should be sufficient to cover the ABCP costs of funds.

Total return swap and repurchase agreement

Funding formula = TRS notional amount + TRS interest portion + repo imputed interest rate

Under a combination of a TRS and repurchase agreement, similar to the stand-alone TRS, the ABCP-sponsored SPV hedges the market risk of a refenced asset. The difference is that under the repurchase agreement, the ABCP-sponsored SPV will sell the referenced asset to the repo counterparty at a purchase price. Upon termination of the repurchase agreement, the ABCP-sponsored SPV will repurchase the referenced asset at a price such that the difference (the repo imputed interest rate) will cover a portion of the ABCP costs of funds. The remaining ABCP costs of funds and notional amount of ABCP notes is obligated to be paid by the TRS counterparty.

Appendix B: Examples Of Projected Portfolio Loss Amount Calculations

The following are examples of how PWCE and projected portfolio loss amounts are calculated for different hypothetical conduits.

Table 5

Conduit	A	B	C	D	E	F	G	H
Rating	'A-1+'	'A-1+'	'A-1'	'A-1'	'A-1+'	'A-1'	'A-1+'	'A-1'
(a) Maximum ABCP maturity (days)	180	397	397	397	397	180	397	270
(b) Total number of exposures	19	25	20	25	9	25	10	12
(c) Number of LECA	11	11	20	19	3	10	--	--
=> (d) Applicable threshold*	10	10	10	10	10	25	10	15
PWCE calculated¶	Yes	Yes	Yes	Yes	Yes	Yes	No	No
Portfolio size§	> threshold	> threshold	> threshold	> threshold	<= threshold	<= threshold	--	--
*Determined based on (a), (b), and (c). ¶Determined based on (b), (c) and (d). §Determined by comparing (b) with (d).

• Conduits A and B both issue 'A-1+' rated ABCP. Conduit A has a maturity limitation for ABCP of 180 days but has a total of 11 exposures subject to LECA; conduit B also has more than 10 exposures subject to LECA. Hence for both conduits, PWCE is calculated, and the applicable threshold is 10 in both cases. As both's total number of exposures (19 and 25, respectively) is above the threshold, the PWCE calculation is following the steps shown in the "Greater than applicable threshold" column in Tables 3A and 3B.
• Conduits C and D both issue 'A-1' rated ABCP. Similar to above, both have more than 10 exposures subject to LECA and therefore PWCE is calculated, and the applicable threshold is again 10. Both conduits show total number of exposures above the threshold.
• For Conduits E and F, PWCE is again calculated, as both have LECAs in the pool. Conduit E has an applicable threshold of 10, and the total number of exposures is below that threshold. Similarly for Conduit F: Given the maturity limitation of 180 days, the applicable threshold is 25, and this conduit has exactly 25 exposures.
• Conduits G and H are examples where PWCE is not calculated: Both have no LECAs in the portfolio, all assets are rated above or commensurate with the ABCP, and the total number of assets is at or below the applicable thresholds. The threshold for Conduit G is 10, as the maximum maturity is 397 days. The threshold for Conduit H is 15 due to the maturity limitation of 270 days.

The following tables show the portfolio compositions and resulting calculations of the projected portfolio loss amounts for Conduits A-F, for which PWCE is calculated.

Table 6A

Examples of largest asset net loss test and PWCE floor calculations for 'A-1+' rated ABCP
	--Conduit A (maximum ABCP maturity: 180 days)--					--Conduit B--
Asset	Asset size (% of portfolio)	Asset credit quality	Credit risk category	LERR (%)	Estimated net loss (% of portfolio)	Asset size (% of portfolio)	Asset credit quality	Credit risk category	LERR (%)	Estimated net loss (% of portfolio)
1	8	AAA	Commensurate	75	2	10	AAA	Commensurate	75	2.5
2	7	AA	Commensurate	75	1.75	20	AA	Commensurate	75	5
3	5	AA	Commensurate	75	1.25	15	AA	Commensurate	75	3.75
4	5	AA	Commensurate	75	1.25	3	AA	Commensurate	75	0.75
5	2.5	AA	Commensurate	75	0.63	3	AA	Commensurate	75	0.75
6	5	AA-	Commensurate	75	1.25	3	AA	Commensurate	75	0.75
7	5	AA-	Commensurate	75	1.25	3	AA	Commensurate	75	0.75
8	2.5	AA-	Commensurate	75	0.63	3	AA	Commensurate	75	0.75
9	10	LECA	LECA	75	2.5	3	AA	Commensurate	75	0.75
10	5	LECA	LECA	75	1.25	1	AA	Commensurate	75	0.25
11	5	LECA	LECA	75	1.25	1	AA	Commensurate	75	0.25
12	5	LECA	LECA	75	1.25	1	AA	Commensurate	75	0.25
13	5	LECA	LECA	75	1.25	5	LECA	LECA	75	1.25
14	5	LECA	LECA	75	1.25	5	LECA	LECA	75	1.25
15	5	LECA	LECA	75	1.25	5	LECA	LECA	75	1.25
16	5	LECA	LECA	75	1.25	2	LECA	LECA	75	0.5
17	5	LECA	LECA	75	1.25	1	LECA	LECA	75	0.25
18	5	LECA	LECA	75	1.25	1	LECA	LECA	75	0.25
19	5	LECA	LECA	75	1.25	1	LECA	LECA	75	0.25
20						1	LECA	LECA	75	0.25
21						1	LECA	LECA	75	0.25
22						1	LECA	LECA	75	0.25
23						1	LECA	LECA	75	0.25
24						5	A-	Below	0	5
25						5	A-	Below	0	5
Total	100					100
LERR--Liquidity-enhanced recovery rate. LECA--Liquidity-enhanced credit analysis.

Table 6B

Examples of largest asset net loss test and PWCE floor calculations for 'A-1+' rated ABCP (continued)
	Conduit A	Conduit B
(A) Largest asset net loss test
(1) Exposures rated above ABCP: largest net loss	--	--
(2) Exposures rated commensurate with ABCP or subject to LECA
Largest net loss	2.5	5
Second-largest net loss	2	3.75
(3) Exposures rated below ABCP: total net loss	--	10
Largest asset net loss test: (higher of (1) and (2)) + (3)	4.5	18.75
(B) PWCE floor
(1) Exposures rated above ABCP: excluded from calculation	--	--
(2) Exposures rated commensurate with ABCP or subject to LECA: 5% of invested amounts	5	4.5
(3) Exposures rated below ABCP: total invested amounts	--	10
PWCE floor: (2) + (3)	5	14.5
Projected portfolio loss amount: higher of (A) and (B)	5	18.75
LERR--Liquidity-enhanced recovery rate. LECA--Liquidity-enhanced credit analysis.

Table 7A

Examples of largest asset net loss test and PWCE floor calculations for 'A-1' rated ABCP
	--Conduit C--					--Conduit D--
Asset	Asset size (% of portfolio)	Asset credit quality	Credit risk category	LERR (%)	Estimated net loss (% of portfolio)	Asset size (% of portfolio)	Asset credit quality	Credit risk category	LERR (%)	Estimated net loss (% of portfolio)
1	10	LECA	LECA	75	2.5	15	AAA	Above	75	3.75
2	5	LECA	LECA	75	1.25	15	AA	Above	75	3.75
3	5	LECA	LECA	75	1.25	12.5	AA	Above	75	3.13
4	5	LECA	LECA	75	1.25	10	AA	Above	0	10
5	5	LECA	LECA	75	1.25	5	A	Commensurate	75	1.25
6	5	LECA	LECA	75	1.25	5	LECA	LECA	75	1.25
7	5	LECA	LECA	75	1.25	4	LECA	LECA	75	1
8	5	LECA	LECA	75	1.25	2.5	LECA	LECA	75	0.63
9	5	LECA	LECA	75	1.25	2.5	LECA	LECA	75	0.63
10	5	LECA	LECA	75	1.25	2.5	LECA	LECA	75	0.63
11	5	LECA	LECA	75	1.25	2.5	LECA	LECA	75	0.63
12	5	LECA	LECA	75	1.25	2.5	LECA	LECA	75	0.63
13	5	LECA	LECA	75	1.25	2.5	LECA	LECA	75	0.63
14	5	LECA	LECA	75	1.25	2.5	LECA	LECA	75	0.63
15	5	LECA	LECA	75	1.25	2	LECA	LECA	75	0.5
16	5	LECA	LECA	75	1.25	1	LECA	LECA	75	0.25
17	5	LECA	LECA	75	1.25	1	LECA	LECA	75	0.25
18	5	LECA	LECA	75	1.25	1	LECA	LECA	75	0.25
19	2.5	LECA	LECA	75	0.63	1	LECA	LECA	75	0.25
20	2.5	LECA	LECA	75	0.63	1	LECA	LECA	75	0.25
21						1	LECA	LECA	75	0.25
22						1	LECA	LECA	75	0.25
23						1	LECA	LECA	75	0.25
24						1	LECA	LECA	75	0.25
25						5	A-	Below	0	5
Total	100					100
LERR--Liquidity-enhanced recovery rate. LECA--Liquidity-enhanced credit analysis. N/A--Not applicable.

Table 7B

Examples of largest asset net loss test and PWCE floor calculations for 'A-1' rated ABCP (continued)
	Conduit C	Conduit D
(A) Largest asset net loss test
(1) Exposures rated above ABCP: largest net loss	--	10
(2) Exposures rated commensurate with ABCP or subjet to LECA
Largest net loss	2.5	1.25
Second-largest net loss	1.25	1.25
(3) Exposures rated below ABCP: total net loss	--	5
Largest asset net loss test: (higher of (1) and (2)) + (3)	3.75	15
(B) PWCE floor
(1) Exposures rated above ABCP: excluded from calculation	--	--
(2) Exposures rated commensurate with ABCP or subject to LECA: 5% of invested amounts	5	2.13
(3) Exposures rated below ABCP: total invested amounts	--	5
PWCE floor: (2) + (3)	5	7.13
Projected portfolio loss amount: higher of (A) and (B)	5	15
LERR--Liquidity-enhanced recovery rate. LECA--Liquidity-enhanced credit analysis. N/A--Not applicable.

Table 8A

Examples of largest asset net loss test and PWCE floor calculations for portfolios up to applicable threshold
	--Conduit E (ABCP rated 'A-1+')--					--Conduit F (ABCP rated 'A-1'; maximum ABCP maturity: 180 days)--
Asset	Asset size (% of portfolio)	Asset credit quality	Credit risk category	LERR (%)	Estimated net loss (% of portfolio)	Asset size (% of portfolio)	Asset credit quality	Credit risk category	LERR (%)	Estimated net loss (% of portfolio)
1	16	AAA	Commensurate	75	4	10	AAA	Above	75	2.5
2	14	AA	Commensurate	75	3.5	15	AA	Above	75	5
3	10	AA	Commensurate	75	2.5	11	AA	Above	75	3.75
4	10	AA	Commensurate	75	2.5	3	AA	Above	75	0.75
5	5	AA	Commensurate	75	1.25	3	AA	Above	75	0.75
6	10	AA-	Commensurate	75	2.5	3	AA	Above	75	0.75
7	20	LECA	LECA	75	5	2	A+	Commensurate	75	0.75
8	10	LECA	LECA	75	2.5	2	A+	Commensurate	75	0.75
9	5	LECA	LECA	75	1.25	2	A+	Commensurate	75	0.75
10						5	A	Commensurate	75	1.25
11						1	A	Commensurate	75	0.25
12						1	A	Commensurate	75	0.25
13						1	A	Commensurate	75	0.25
14						5	LECA	LECA	75	1.25
15						5	LECA	LECA	75	1.25
16						5	LECA	LECA	75	0.5
17						2.5	LECA	LECA	75	0.25
18						2.5	LECA	LECA	75	0.25
19						2.5	LECA	LECA	75	0.25
20						2.5	LECA	LECA	75	0.25
21						2.5	LECA	LECA	75	0.25
22						2.5	LECA	LECA	75	0.25
23						1	LECA	LECA	75	0.25
24						5	A-	Below	0	5
25						5	A-	Below	0	5
Total	100					100
LERR--Liquidity-enhanced recovery rate. LECA--Liquidity-enhanced credit analysis.

Table 8B

Examples of largest asset net loss test and PWCE floor calculations for portfolios up to applicable threshold (continued)
	Conduit E	Conduit F
(A) Largest asset net loss test
(1) Exposures rated above ABCP: excluded from calculation	--	--
(2) Exposures rated commensurate with ABCP: excluded from calculation	--	--
(3) Exposures subject to LECA: largest net loss	5	1.25
(4) Exposures rated below ABCP: total net loss	--	10
Largest asset net loss test: (3) + (4)	5	11.25
(B) PWCE floor
(1) Exposures rated above ABCP: excluded from calculation	--	--
(2) Exposures rated commensurate with ABCP: excluded from calculation	--	--
(3) Exposures subject to LECA: 5% of invested amounts	1.75	1.55
(4) Exposures rated below ABCP: total invested amounts	--	10
PWCE floor: (2) + (3)	1.75	11.55
Projected portfolio loss amount: higher of (A) and (B)	5	11.55
LERR--Liquidity-enhanced recovery rate. LECA--Liquidity-enhanced credit analysis.

Appendix C: Examples of Conduit Structures

The following diagrams illustrate the most common transaction structures used to issue ABCP notes. The typical structure involves one SPV, one liquidity provider, and one or more sellers. In general, we conduct a legal review of the bankruptcy remoteness of ABCP conduit, which includes reviewing the grant of a first-priority perfected security interest by the conduit in favor of the liquidity provider or other relevant parties.

The diagram below illustrates a two-SPV structure. The first SPV, the feeder conduit, faces the seller and liquidity provider. The second SPV, the issuing conduit, faces the feeder conduit, typically via an intercompany loan agreement. In general, we conduct a legal review of the bankruptcy remoteness of both SPVs. This includes reviewing the grant of a first-priority perfected security interest by the feeder conduit in favor of the liquidity provider or other relevant parties to secure the loan.

Chart 7 illustrates a multi-use SPV structure, which is a variant of the two-SPV structure illustrated above. In this scenario, each series of ABCP notes is supported by a specific liquidity provider. In addition, each series of ABCP notes has limited recourse against a specific asset. Under this scenario, we generally review and rate each series of ABCP notes independently, so long as the legal structure is consistent with our multi-use criteria.

Chart 8 illustrates a structure where the SPV is an unrelated entity of the issuing conduit's sponsor. The conduit issues ABCP and purchases an unrated note issued by the SPV. This structure is not in scope of the ABCP criteria.

Appendix D: Glossary

Glossary
Term	Definition
ABCP	Asset-backed commercial paper. A short-term liability that typically matures between 1 and 397 days and is issued by a conduit using an SPE as issuer. The commercial paper are backed by assets that the conduit owns.
Acceleration	Immediate maturity and repayment of bonds before their legal maturity.
Administrator	Party responsible for carrying out the conduit's day-to-day asset/liability management.
Allocated PWCE	Portion of PWCE that's allocated to specific assets, such as based on the result of a LECA on this asset or to bridge the credit gap for an asset with credit quality that's not commensurate with the conduit's ABCP rating. Such allocations reduce the PWCE available for the remaining exposures in the conduit and therefore are added to the projected portfolio loss amount when we calculate the minimum total PWCE.
Asset-based funding formula	A formula based on the amount of assets backing the ABCP. The purchase price is generally equal to the outstanding balance of eligible receivables plus the ABCP interest.
Automatic stay	An injunction generally imposed against creditors that continue taking action against a transferor or its property upon its bankruptcy. It stops all collection efforts on receivables that could delay the flow of funds used to repay the ABCP on a timely basis.
Available liquidity commitment	Unused portion of the liquidity provider's maximum commitment.
Bankruptcy remote	In accordance with our legal criteria, we view an SPE as bankruptcy remote if it's structured to minimize the risk that it will voluntarily or involuntarily file for bankruptcy.
Bankruptcy-remote transferors	Entities that we view as bankruptcy remote, even though they are eligible to be debtors under the U.S. Bankruptcy Code, such as public-purpose entities or SPEs.
Bankruptcy remoteness	The likelihood that a voluntary or involuntary bankruptcy filing will be made (bankruptcy remote does not mean bankruptcy proof).
Breakage fees	If the derivative counterparty terminates the derivative agreement early, the conduit could become liable for early termination costs (derivative break costs), which could result in cash flow shortfalls.
Callable ABCP	ABCP that gives the conduit the right to redeem--in whole or in part--prior to maturity, pursuant to call notice provisions.
Capital-based funding formula	A formula based on the amount of ABCP the conduit issues against the assets. The purchase price is generally the face amount of the ABCP.
Collateral agent	Party that receives a security interest from the conduit in all of its assets, rights, and interests under all the program documents, including accounts and investments. The collateral agent holds this security interest for the benefit and repayment of the investors, support providers, and service providers.
Conduit	An ABCP conduit is an SPE/SPV that issues ABCP to finance the purchase of assets or to make loans. Conduits are ongoing concerns and don't wind down after a few years.
Custodian	Party responsible for holding the collateral for the benefit of the secured parties in a securities account. The custodian agreement details the procedures for handling of collateral to maintain a perfected first-priority security interest in these assets.
Dilutions	A non-cash adjustment to the asset's principal balance that has already been sold under the securitized transaction and is subsequently returned.
Discounted ABCP	ABCP that is sold at a discount to the face value, paid at maturity, akin to a zero-coupon note. The interest earned is the difference between sale price and face value.
Equity owner	Entity that purchases the shares of equity in the ABCP conduit, such as a charitable trust or orphan SPE.
Extendible ABCP	ABCP that can be extended if not rolled over on its expected maturity date, with repayment occurring on the final (extended) maturity date. The final maturity date can be up to 397 days from the issuance date.
Face amount	Liquidity funding formula that provides for the payment of the ABCP, which is the principal of and interest on the maturity ABCP, without regard to the performance of the assets.
Floating-rate ABCP	ABCP that's issued at a floating interest rate that resets at a spread to a benchmark index on a periodic basis.
Interest-bearing ABCP	ABCP that's issued with a rate of interest paid on a periodic basis.
Issuance test	Condition that needs to be satisfied for a conduit to issue ABCP notes to protect investors. If these tests are breached, the conduit may not be able to repay maturing ABCP in full.
Issuing and paying agent	Also known as the depositary. The party responsible for issuing ABCP upon the placement agents' direction and hold ABCP accounts into which new ABCP proceeds are deposited. It also provides notice of any ABCP deficiencies.
KTP	Key transaction party. A party integral to the function of the transaction with administrative responsibilities. Typically an administrator, issuing and paying agent, liquidity provider, and/or custodian.
Last good report	The monthly report that is delivered prior to the breach of the asset to liability test (such as a borrowing base breach or failure to pay principal and interest on ABCP issued by the trust), which leads to a put to liquidity. This report ensures that credit enhancement or reserves in the transaction are topped-up, and typically only the defaulted receivables are reduced.
LECA (liquidity-enhanced credit analysis)	Our analysis of a transaction's risk profile that takes into account the asset quality, the provisions of liquidity and/or credit enhancement facilities, transaction-specific and conduit-level structural features, and our view of the conduit administrator/sponsor's credit underwriting and conduit administration capabilities. We refer to our analysis as "liquidity-enhanced" because transaction-level and conduit-level liquidity facilities can mitigate some or all of a transaction's legal, credit, and liquidity risks. A LECA is not a rating and should not be viewed as an indication of the stand-alone credit quality of a transaction funded by a conduit. When conducting a LECA, we analyze transactions funded by 'A-1 (sf)' or 'A-1+ (sf)' rated ABCP by applying a level of credit stress commensurate with an 'A' or 'AA-' rating scenario, respectively. If the loss amount we expect after applying our stress-case analysis exceeds the transaction-specific credit enhancement amount, we typically allocate a portion of the conduit's PWCE to cover such excess loss amount. LECAs generally do not involve direct contact between S&P Global Ratings and the seller's management, nor do they involve an analysis of the operating, financial, or strategic issues of the seller. Instead, we base a LECA primarily on transaction information that the conduit administrator/sponsor provides to us. As such, we expect and rely on the conduit administrator/sponsor to conduct a credit approval process and to perform both the initial and ongoing on-site business reviews of the seller and any other parties involved in the origination and servicing of the transaction.
Liquidity asset purchase agreement	A legal agreement, typically between the liquidity provider and conduit, in which the liquidity provider purchases the assets from the conduit, with assets ultimately residing with the liquidity provider.
Liquidity loan agreement	A legal agreement, typically between the liquidity provider and conduit, in which the liquidity provider loans funds to the conduit with assets remaining in the conduit's possession.
Liquidity provider	A financial institution rated at least as high as the ABCP that provides a renewable commitment to the conduit related to a specific pool of assets. Used to pay off maturing ABCP issued in relation to any asset pool. This party is typically provided by the administrator/sponsor for bank-sponsored conduits.
LOC	Letter of credit. An irrevocable facility used to provide credit and/or liquidity support.
Medium-term notes (MTNs)	Notes with longer dated maturities, typically ranging from 180 days to 30 months, that carry a long-term rating. The failure to pay timely interest or principal on an MTN could result in a default of all ABCP for a conduit (repay MTN and ABCP when due in full for long-term rating on the MTN to be consistent with the short-term rating on the ABCP).
Multi-seller	A conduit structured to provide financing to multiple unaffiliated sellers operating in different industries and offering a variety of asset types.
Non-consolidation opinion	An opinion that provides that if the seller were to become bankrupt, a court would hold that neither the purchaser nor its assets and liabilities would be substantively consolidated with the seller.
Nonpetition	All creditor parties in the transaction (such as the servicer, trustee, and liquidity provider) agree not to file the conduit into bankruptcy before one year and one day after the rated debt is paid off. This reduces any incentive parties might have to file a claim against the trust and cause the trust to enter bankruptcy.
Obligor	The entity or person responsible for making payments under any receivables financed by the transaction.
Open-market transfer	A type of sale considered to be an arm's-length transaction between nonaffiliated parties. The seller received payment in full at the time of the transfer and did not receive any securities issued in the transaction as payment.
Originator	The entity that underwrites the underlying assets in a transaction and can be the same party as the seller.
Placement agent	Typically, financial institutions responsible for providing instructions to the issuing and paying agent to issue ABCP after selling ABCP to investors.
Post-review	We use "post-review transactions" to describe transactions where we complete our review of the transactions after the transactions are funded.
Preference risk, preferential transfer, and voidable preference	Under Section 547 of the U.S. Bankruptcy Code, certain property transfers that a bankrupt debtor made during certain period prior to its bankruptcy could be deemed a preferential transfer, and the bankrupt debtor's estate may void and recapture those property transfers. This may include payments made by the debtor to service and/or repay existing debt. There could be similar preferential transfer and recapture risk under the insolvency regime of other jurisdictions.
Prior review	We use "prior-review transactions" to describe transactions that we expect will not be funded by the conduit until S&P Global Ratings has reviewed the proposed changes.
Program-wide letter of credit provider	A financial institution rated at least as high as the ABCP that provides a multi-year letter of credit to the conduit. This can be drawn upon if the liquidity commitment is insufficient to repay ABCP related to any asset pool. This party is typically provided by the administrator/sponsor for bank-sponsored conduits.
Program-wide credit enhancement (PWCE)	PWCE is a fungible layer of additional credit enhancement, typically provided to a partially supported ABCP conduit by a third party (often an affiliate of the conduit's sponsor/administrator). PWCE can be used to cover losses on assets in the event asset-specific credit enhancement is depleted or one of the support providers defaults. PWCE may also be used to bridge the credit gap for exposures with credit quality that's not commensurate with the conduit's ABCP rating.
Puttable ABCP	ABCP that gives the investor the right to demand redemption of the notes in whole or in part prior to maturity, pursuant to put notice provisions.
Seller	The entity receiving the proceeds of the ABCP in exchange for a pledge of assets. This entity remains anonymous with ABCP investors.
Senior expenses	Fees, expenses, taxes, external support-related payments, indemnifications, etc., payable to key third-party service providers that are senior to payment of ABCP interest and principal in the conduit-level waterfall.
Serialized ABCP	ABCP issued in different series that can be repaid from multiple sources that are separate and segregated (such as assets or counterparties).
Servicer	The entity responsible for collecting the assets and enforcing the rights of the secured parties upon a default of an asset. Can also be the originator.
Short-tail	Analysis in which the ABCP tenor is restricted (thus reducing the conduit's exposure to risk) through the review of liquidity funding formulas and related performance triggers.
Single-seller	A conduit established to fund assets originated or accumulated by a single entity.
SPE/SPV	Special-purpose entity/special-purpose vehicle. A legal entity created to fulfill narrow, specific, or temporary objectives, typically used by companies to isolate the firm from financial risk.
Sponsor	Party responsible for creating the conduit; can also be the administrator. "Sponsor" is a colloquial term and not typically found as a defined term in the documents.
Support provider	Party whose rating supports the ABCP rating. Examples are liquidity providers or credit enhancement providers (including PWCE providers) that cover asset credit and/or liquidity risk by addressing timing mismatches and ensuring timely payment to ABCP holders.
Unbilled receivable	A receivable where the originator has rendered its services to the obligor, though an invoice has not been generated.

KEY CHANGES FROM PREVIOUS CRITERIA

The criteria are, in principle, a consolidation of five ABCP criteria articles. The only analytical changes to the criteria are in the calculation of program-wide credit enhancement (PWCE):

• Previous criteria allowed for a pool to have more than 10 exposures and still be treated as a small pool. Limiting the maximum ABCP maturity to 180 days allows up to 25 exposures, and a 95-day maximum maturity raises the number of exposures to 40. We updated those limitations by adding that a maturity limitation of 270 days allows up to 15 exposures and removing the 95-day maturity limitation. This is based on the observation that conduits don't use tenors as short as 95 days, and the gap between a 180-day limit and the typical commercial paper tenor of 397 days is quite wide.
• Under previous criteria, in the determination of the projected portfolio loss amount, 'AAA' rated exposures were treated differently than 'AA' rated exposures. We aligned the two, treating both the way we treated 'AA' under the previous criteria. This means that 'AAA' exposures are affecting the calculation of the PWCE floor for 'A-1+' rated conduits that have a greater number of exposures than the applicable threshold. 'AAA' rated exposure could also (depending on their size) affect the result of the largest exposures net loss test for 'A-1' and 'A-1+' rated conduits that, again, have a greater number of exposures than the applicable threshold.

IMPACT ON OUTSTANDING RATINGS

As of Feb. 13, 2024, S&P Global Ratings had 252 public ratings on ABCP issued by ABCP conduits. We don't expect any impact on those ratings.

REVISIONS AND UPDATES

This article was originally published on March 22, 2024.

Changes introduced after the original publication:

• On June 7, 2024, we republished this criteria to correct an error in table numbering in tables 3A, 3B, and 5.

RELATED PUBLICATIONS

Fully Superseded Criteria

• Global Methodology For Analyzing Liquidity Funding Outs And Limitations In ABCP Transactions, Oct 27, 2014
• Global Methodology And Assumptions For Calculating Programwide Credit Enhancement In Multiseller ABCP Conduits, Feb. 14, 2013
• Asset-Backed Commercial Paper Issued By Multiseller Conduits: Classification And Timing Of Reviews For New-Seller Transactions, April 18, 2011
• S&P Global Ratings' Analysis Of ABCP Ratings Following Changes To Ratings On Support Providers, Dec. 18, 2008
• Global Asset-Backed Commercial Paper Criteria, Sept. 29, 2005

Related Criteria

• Financial Institutions Rating Methodology, Dec. 9, 2021
• Global Framework For Payment Structure And Cash Flow Analysis Of Structured Finance Securities, Dec. 22, 2020
• U.S. Structured Finance Asset Isolation And Special-Purpose Entity Criteria, May 15, 2019
• Counterparty Risk Framework: Methodology And Assumptions, March 8, 2019
• Methodology For Linking Long-Term And Short-Term Ratings, April 7, 2017
• Structured Finance: Asset Isolation And Special-Purpose Entity Methodology, March 29, 2017
• Global Framework For Assessing Operational Risk In Structured Finance Transactions, Oct. 9, 2014
• Global Derivative Agreement Criteria, June 24, 2013
• Global Investment Criteria For Temporary Investments In Transaction Accounts, May 31, 2012
• Principles Of Credit Ratings, Feb. 16, 2011
• Asset-class-specific criteria: listed in "Table Of Contents: S&P Global Ratings Structured Finance Criteria," updated periodically

Other Related Publications

• Updated Global Asset-Backed Commercial Paper Criteria Published, March 22, 2024
• RFC Process Summary: Global Asset-Backed Commercial Paper Methodology And Assumptions, March 22, 2024
• S&P Global Ratings Definitions, updated from time to time

This article is a Criteria article. Criteria are the published analytic framework for determining Credit Ratings. Criteria include fundamental factors, analytical principles, methodologies, and /or key assumptions that we use in the ratings process to produce our Credit Ratings. Criteria, like our Credit Ratings, are forward-looking in nature. Criteria are intended to help users of our Credit Ratings understand how S&P Global Ratings analysts generally approach the analysis of Issuers or Issues in a given sector. Criteria include those material methodological elements identified by S&P Global Ratings as being relevant to credit analysis. However, S&P Global Ratings recognizes that there are many unique factors / facts and circumstances that may potentially apply to the analysis of a given Issuer or Issue. Accordingly, S&P Global Ratings Criteria is not designed to provide an exhaustive list of all factors applied in our rating analyses. Analysts exercise analytic judgement in the application of Criteria through the Rating Committee process to arrive at rating determinations.

Analytical Contacts:	Radhika Kalra, Austin + 1 (212) 438 2143; radhika.kalra@spglobal.com
	Alexander J Gombach, New York + 1 (212) 438 2882; alexander.gombach@spglobal.com
	Florent Stiel, Paris + 33 14 420 6690; florent.stiel@spglobal.com
	Joshua C Saunders, Chicago + 1 (312) 233 7059; joshua.saunders@spglobal.com
Methodology Contacts:	Volker Laeger, Frankfurt + 49 693 399 9302; volker.laeger@spglobal.com
	Mauricio Tello, Englewood + 1 (212) 438 1206; mauricio.tello@spglobal.com
Analytical Contacts:	Dev C Vithani, New York + 1 (212) 438 1714; dev.vithani@spglobal.com
	Maxime Pontois, Paris (33) 1-4075-2538; maxime.pontois@spglobal.com
Methodology Contacts:	Herve-Pierre P Flammier, Paris +33 1 44 20 73 38; herve-pierre.flammier@spglobal.com