Response to discussion on the review of the NPL transaction data templates
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As a matter of presentation we prefer not to comingle property and non-property collaterals. The current market practice often separates these collateral types. Our main issue, however, is the deletion of mortgage related information which we consider important for more complex property collateral arrangements. We disagree with the deletion of Mortgage Identifier and Mortgage Amount and would in addition like to see a Mortgage Type and a distinction between Higher Ranking Mortgage Amount and a Higher Ranking Claim Amount.
We do not consider the financials of corporate borrowers critical as this information is often outdated, but these fields should be kept in the template: Fixed Assets, Current Assets, Cash and Cash Equivalent, Total Assets, Total Liabilities, Total Debt, Market Cap, Annual Revenue, Annual EBIT.
The field Jurisdiction of Court is not specific enough to assess the regional differences between different courts within one country and their respective efficiency. We recommend instead to have a field identifying the city, province or name of the court.
We disagree with the proposed deletion of Product Type and Loan Status. Regarding Product Type we think more choices should be offered e.g. Term Loans; Revolving Credit Facility; Overdraft; Finance Lease; Operating Lease; Card; Invoice; Micro Loan. In addition, we think certain data fields are missing that describe distressed leveraged loans. For example, a categorisation whether a loan is a term loan A, B or higher is required as are classifications as is a field for secured or unsecured, and first lien or second lien. Any loans granted after distress that are privileged in an insolvency like DIP financing should be identified through Product Type or through a separate field.
We think a field should be added that identifies limited recourse mortgage loans, i.e. loans where the borrower can hand back the keys to the lender that are common some European jurisdictions.
a. Percentage of pooled ownership of the collateral.
b. A Property Status field e.g. similar to the ESMA field with the same name indicating among others whether the property is owned by the lender (Real Estate Owned)
c. A field with the URL of the location of the property on an map
d. We think important fields related to the costs of a property collateral have been deleted unjustifiably. We think the fields Planned Capex next 12m and Current Opex and Overheads should be reinstated. In fact, we propose to split out Opex by property taxes, insurance, and service charges.
e. As in the Counterparty template, we recommend to make the information about the court more specific (city, province or name of the court) rather than the requested country of jurisdiction (field name Jurisdiction of Court).
We are missing a field that indicates whether a repossessed collateral has been regularized and is now unencumbered for immediate sale in the open market.
Regarding Latest Valuation Amount, it is not clear whether this field should be reported as the auction reserve price or sold amount where those amounts are available.
In summary, the current structure of template 5 does not offer enough flexibility to report cash flows or balances beyond three years which are often encountered in real transactions. In addition, the number of different collection and expense types is not sufficient. Increasing both the number of cash flow dates and the number of cash flow types requires a reformatting of the data into a long table format.
We recommend to add certain meta data and additional descriptive data fields to the templates to emphasise the relevance of the unstructured information.
For example, the following data fields could be added to the collateral template:
Description of property red flags
Description of property recovery strategy
Description of technical survey
Description of environmental survey
Description of inspection results
Description of legal status, title, permits, warranties, zoning
Description of location and public infrastructure
Description of construction features and installations
Description of maintenance and operations
Description of tenants and vacancies
The following fields could be added to the counterparty table:
Description of available contracts
Description of available collaterals
Description of counterparty red flags
Description of counterparty recovery strategy
1. Do you agree with the proposed data structure and the relationship between templates? If not, please provide explanation.
We agree with most of the changes proposed to the data structure. We think it is important that each data file clearly shows the portfolio name or identifier, the cut-off date and, separately, the reporting date. It is common during a transaction process that updated versions of the data file are distributed to investors with the same cut-off date but different reporting dates or version numbers. There should be only one portfolio cut-off date which is the same for all loans and after repeated updates could differ from the reporting or extraction date of individual loans.As a matter of presentation we prefer not to comingle property and non-property collaterals. The current market practice often separates these collateral types. Our main issue, however, is the deletion of mortgage related information which we consider important for more complex property collateral arrangements. We disagree with the deletion of Mortgage Identifier and Mortgage Amount and would in addition like to see a Mortgage Type and a distinction between Higher Ranking Mortgage Amount and a Higher Ranking Claim Amount.
2. Do you agree with the deletion of data categories ‘NPL portfolio’ and ‘Swap’? If not, please provide explanation.
We agree with the deletion of Swap. Regarding NPL portfolio please see comments to the previous section.3. Do you think the suggested list of data fields capture all the relevant information on the counterparty needed for NPL valuation and financial due diligence? If not, please indicate which other data fields should be included and provide explanation for this.
We suggest to reinstate the Date of Last Contact and Counterparty Deceased as non-critical fields. These fields carry information about the past workout intensity and dealing with the estate of the deceased or the heirs can materially change the timing of recoveries. We propose to reinstate the critical fields with personally identifiable information of private individuals. While this information may be reserved for a later transaction stage and is subject to data protection rules it is price sensitive for the investor to know the personal identifiers and current address of the borrower.We do not consider the financials of corporate borrowers critical as this information is often outdated, but these fields should be kept in the template: Fixed Assets, Current Assets, Cash and Cash Equivalent, Total Assets, Total Liabilities, Total Debt, Market Cap, Annual Revenue, Annual EBIT.
The field Jurisdiction of Court is not specific enough to assess the regional differences between different courts within one country and their respective efficiency. We recommend instead to have a field identifying the city, province or name of the court.
4. Do you think any specific data fields should be excluded from the template? If yes, please specify the data fields and give explanation to your answer.
No further fields should be excluded. We recommend to include a field Cash in Court to the counterparty table as a non-critical field. Knowing the cash amount reported by the court is price sensitive.5. Do you agree that data fields on current external and internal credit scores and current external and internal credit scores at origination should be included in the template (for both private individual and corporate counterparties)?
Yes, these fields should remain in the template as non-critical fields.6. Do you agree that data fields on corporate’s latest available financial statement amounts should be included in the template?
Yes, these fields should remain in the template as non-critical fields.7. Do you agree that data fields related to corporate counterparties’ assets and liabilities, market capitalisation should be included in the template?
Yes, these fields should remain in the template as non-critical fields.8. Do you agree with the proposed Template 2 of Annex I? If not, please provide explanation to your answer.
As mentioned above, we disagree with the deletion of mortgage related information which we consider important for more complex property collateral arrangements. We think the Mortgage Identifier and Mortgage Amount (as registered in the land register) add information separate from the outstanding balance of the loan. In addition, we would like to see a Mortgage Type (voluntary/ judicial) and a distinction between Higher Ranking Mortgage Amount and a Higher Ranking Loan Amount.9. Do you agree with the inclusion of the data fields related to interest rates and other information as per contractual agreement for the valuation and financial due diligence of NPLs, especially when they are not more than 90 days past due? Please provide data field-specific explanation to your answer.
Yes, these fields should remain in the template as non-critical fields. We suggest to clarify the applicability of a penalty interest rate a) whether the lender still accrues interest on the loan and b) the current accrual happens at the originally contracted interest rate or a penalty interest rate and c) if there is an expected end date from which no interest will accrue any longer. We miss data fields that identify debtor in possession financings and call protection features.10. Do you agree with the inclusion of the data fields related to forbearance measures for the valuation and financial due diligence of NPLs?
Yes, we consider forbearance related information important. However, in practice we find forbearance information reported differently from the suggested data fields. We would like to see data fields that explicitly refer to discounted payoffs i.e. the lender has proposed or the borrower has agreed a partial repayment of the loan. It is not clear to us why the field Principal Forgiveness refers to external collection agents. The reference should be to the principal agreed to be forgiven by the lender. It must be clear whether the borrower has agreed to the forbearance measure or whether it is a proposal by the lender or servicing agent. Where a DPO or repayment plan has been agreed it is important to know whether the borrower is currently performing under such a forbearance agreement.11. Do you think the suggested list of data fields capture all relevant information on financial instrument needed for NPL valuation and financial due diligence? If not, please indicate which other data fields should be included and provide explanation for this.
We recommend to include a field identifying the amount of liabilities ranking senior and liabilities ranking pari passu, respectively. We acknowledge that bank source systems do not always carry this information, but they are important fields to establish in a financial due diligence.We disagree with the proposed deletion of Product Type and Loan Status. Regarding Product Type we think more choices should be offered e.g. Term Loans; Revolving Credit Facility; Overdraft; Finance Lease; Operating Lease; Card; Invoice; Micro Loan. In addition, we think certain data fields are missing that describe distressed leveraged loans. For example, a categorisation whether a loan is a term loan A, B or higher is required as are classifications as is a field for secured or unsecured, and first lien or second lien. Any loans granted after distress that are privileged in an insolvency like DIP financing should be identified through Product Type or through a separate field.
We think a field should be added that identifies limited recourse mortgage loans, i.e. loans where the borrower can hand back the keys to the lender that are common some European jurisdictions.
12. Do you think any specific data fields should be excluded from the template? If yes, please specify the data fields and give explanation to your answer.
No, we would retain all proposed fields as we believe that a standard data template should aim to be comprehensive and also include all fields potentially relevant to investors even if not critical.13. Do you agree with the data fields related to lease? Please provide data field-specific explanation to your answer.
Yes, we agree.14. Do you think the suggested list of data fields capture all relevant information on collateral needed for NPL valuation and financial due diligence? If not, please indicate which other data fields should be included and provide explanation for this.
We are missing information about the following items:a. Percentage of pooled ownership of the collateral.
b. A Property Status field e.g. similar to the ESMA field with the same name indicating among others whether the property is owned by the lender (Real Estate Owned)
c. A field with the URL of the location of the property on an map
d. We think important fields related to the costs of a property collateral have been deleted unjustifiably. We think the fields Planned Capex next 12m and Current Opex and Overheads should be reinstated. In fact, we propose to split out Opex by property taxes, insurance, and service charges.
e. As in the Counterparty template, we recommend to make the information about the court more specific (city, province or name of the court) rather than the requested country of jurisdiction (field name Jurisdiction of Court).
15. Do you think any specific data fields should be excluded from the template? If yes, please specify the data fields and give explanation to your answer.
We do not think that further fields should be excluded.16. Do you agree with the data fields on the characteristics of non-property collateral? Please provide data field-specific explanation to your answer.
There is no further category for different guarantee types. We propose to introduce a field guarantee type or guarantor type different from the legal type of the counterparty. For example, guarantors types could be: individual, corporate, bank, insurance, sovereign, ECA, cooperative.We are missing a field that indicates whether a repossessed collateral has been regularized and is now unencumbered for immediate sale in the open market.
17. Do you agree with the data fields related to the enforcement of collateral? Please provide data field-specific explanation to your answer.
It is not clear how a credit bid should be reported where the lender has acquired the property collateral in the auction.Regarding Latest Valuation Amount, it is not clear whether this field should be reported as the auction reserve price or sold amount where those amounts are available.
18. Do you agree with the proposed Template 5 of Annex I for NPL valuation and financial due diligence? Please provide data field-specific explanation to your answer.
We think the EBA NPL data templates are well designed and fit for purpose, However, we take issue with the design of Template 5. We believe that the fixed 36 month schedule is not flexible enough for all purposes and does not allow to distinguish a sufficiently granular number of different collection and expense types which we often see in practice. We recommend to use a long table format where each collection cash flow date has its own row. This is the most common data format encountered in practice when servicers report their monthly collections. Different cash flow types could have different field names or one uses a single field called Cash Flow Type which takes choices such as total gross collection, gross collection from judicial procedures, gross collection from voluntary arrangement, legal expenses, procedural and court expenses, etc. For large portfolios the long table format might encounter the 1 million row limitation of MS Excel. Hence, it may be more practical to use a table structure where different collection types have their own data field. The ESMA Annex 10 NPL add-on also uses the 36 months wide table structure which is puzzling as many NPL securitisation are expected to remain outstanding for more than three years. We recommend to find a more suitable long table format for both the EBA and ESMA NPL data templates.In summary, the current structure of template 5 does not offer enough flexibility to report cash flows or balances beyond three years which are often encountered in real transactions. In addition, the number of different collection and expense types is not sufficient. Increasing both the number of cash flow dates and the number of cash flow types requires a reformatting of the data into a long table format.
19. Do you agree with description of data fields presented in data dictionary?
Yes, we agree subject to some specific remarks above.20. Do you agree with criticality (and non-criticality) of data fields presented in data dictionary? If not, please provide suggestions and explanations related to specific data fields.
Yes, we agree subject to some specific remarks above.21. Do you agree with confidentiality aspects of data fields? If not, please provide explanation.
We agree that some fields are more sensitive with regards to confidentiality than others. We recommended above that some of the fields in the current templates containing personally identifiable information should be reinstated as they are important and price sensitive. It is not clear to us what is the consequence of a field being labelled confidential. Should those fields be disclosed only in the final stage of due diligence? We believe that the industry has found practical solutions that protect confidentiality and comply with GDPR requirements.22. Do you agree with excluding no data options for data fields? If not, please provide suggestions and explanations related to specific data fields.
We think it is very important not to deter sellers who cannot provide some critical data fields. Investors are used to price NPL with incomplete or deficient information and sellers may come to a reasonable assessment that the collection of additional information is not economically justifiable. The classification of critical and non-critical is important, however, as it helps investor to focus on the most important missing information. However, the barrier of compliance with the template should be low meaning that sellers should be free to provide incomplete data files without the fear of reputational or other repercussions. In other words, data providers should be encouraged to provide the available information in the proposed template format, but should not be forced to collect information that they do not have or are not willing to provide.23. Please provide your views on how proportionality considerations regarding the size of the exposures or portfolios being sold should be incorporated in the implementation of NPL data templates.
Further to our comment in question 22, we think the problem of proportionality goes away if the role of the template is to standardize the information provided and not to set a minimum standard of mandatory information that may be costly to achieve.24. Should there be a threshold (e.g. in monetary terms) for the application of the proportionality principle? If yes, then how should this be defined?
Not required in our view.25. Do you agree that the proposed approach takes into account, in an adequate way, the proportionality principle? If not, which additional elements should be considered?
No further comment.26. Please provide your views on the asset classes covered and whether any specific data fields, other than already foreseen, should be included in the templates for ensure full coverage of certain asset classes.
Please see comment about leveraged loans above.27. In your view, is the structure and coverage of the templates adequate for both portfolio transactions and transactions where an individual exposure is traded? Please explain your answer.
We think the structure and coverage of the templates is adequate for portfolio and single name transactions. It should be clear that the structured data defined by the templates is just one set of information provided to investors. Unstructured data like pictures of properties, maps, legal documents, financial reports, collateral valuation reports play an important role for both portfolios and single names and are outside the scope of the templates.We recommend to add certain meta data and additional descriptive data fields to the templates to emphasise the relevance of the unstructured information.
For example, the following data fields could be added to the collateral template:
Description of property red flags
Description of property recovery strategy
Description of technical survey
Description of environmental survey
Description of inspection results
Description of legal status, title, permits, warranties, zoning
Description of location and public infrastructure
Description of construction features and installations
Description of maintenance and operations
Description of tenants and vacancies
The following fields could be added to the counterparty table:
Description of available contracts
Description of available collaterals
Description of counterparty red flags
Description of counterparty recovery strategy