Financial Regulatory Authority Board of Directors Resolution No. (115) of 2022

FINANCIAL REGULATORY AUTHORITY

Chairman of the Authority  

Resolution No. (115) of 2022 dated 27/9/2022  
Regarding the Regulations Governing the Issuance of Securitization Bonds Backed by Future Cash Flows  

The Board of Directors of the Financial Regulatory Authority  
Having reviewed the Capital Market Law issued by Law No. (95) of 1997 and its Executive Regulations;  
And Law No. (10) of 2009 regulating supervision over non-banking financial markets and instruments;  
And after approval by the Authority's Board of Directors in its session held on 27/9/2022;  

Has decided

(Article One)  
Securitization companies may issue tradable bonds, the proceeds of which are directed to finance public or private legal entities upon approval by their competent authority, in exchange for future expected cash flows arising in favor of these entities and owed by the originator according to ordinary business operations. It is required that such cash flows:  
1- Arise in favor of public or private legal entities.  
2- Are not encumbered or conditional.  
3- Be free from any present or future rights of third parties.

(Article Two)  
A portion of the future cash flows from one or more specific projects, originating from one or more assets of the originator, is transferred over a specified period, pursuant to an agreement between the originator and the securitization company.  
The originator must prepare a study approved by its external auditor, detailing the historical operational rates and revenues of the project (if any), as well as the expected future cash flows for the project throughout the issuance period. The study must also demonstrate that the future cash flows are sufficient to cover the securitization point and pay bondholders' entitlements at their due dates.

(Article Three)  
Bondholders shall have a preferential right over the securitization portfolio, ensuring the fulfillment of their principal and interest entitlements from these bonds.  
Additional guarantees may be provided, which can be referred to for paying bondholders' entitlements, and these guarantees may be pledged in accordance with the governing legal provisions.

(Article Four)  
The originator of a future cash flow securitization portfolio is committed, upon issuing the bonds, to the following:  
1- Obtaining a credit rating from one of the licensed rating agencies or one of the authorities approved by the Authority, which shall not be lower than (BBB-), subject to annual renewal throughout the issuance period.  
2- Disclosing in the prospectus or offering memorandum a summary of financial statements prepared according to Egyptian Accounting Standards for the three years preceding issuance, or from the date of establishment to issuance if the three-year period has not elapsed (if applicable), accompanied by an external auditor's report on those statements prepared according to Egyptian Auditing Standards.  
3- Submitting a statement certifying the present value of future cash flows, their valuation basis, and additional guarantees (if any), approved by the originator's external auditor.  
4- Specifying in detail the future cash flows to be securitized, and providing evidence of their continuity throughout the issuance period.  
5- Specifying the guarantees provided to bondholders clearly for recourse in case of deficiency or breach.

(Article Five)  
The prospectus for securitization bonds must include an offering memorandum, in addition to the data stipulated in Article (304) of the Executive Regulations of the Capital Market Law, specifically as follows:  
1- Data regarding the originator, specifically:  
   - Legal form.  
   - Issued and paid-up capital of the local company.  
   - Shareholder structure owning (5%) or more of the capital or voting rights of the local company.  
   - Exposure to litigation and arbitration cases related to its activity, affecting its financial position, one of its shareholders, or other owned assets. If the originator is a company, the statement must include litigation and arbitration cases exceeding (2%) of the company's equity according to the latest annual financial statements.  
   - Grouped or standalone, as applicable.  
   - Tax status and any other dues owed to the state, along with a statement on whether there are any mortgages or liens on its assets or any loans or credit facilities granted to it (if applicable).  
   - A summary of the transfer agreement concluded between the originator and the securitization company, including at least a statement on the value of the securitization portfolio, its criteria and characteristics, and their adequacy.  
   - A summary of the financial statements and data for the originator according to Egyptian Accounting Standards for the three years preceding issuance, or from establishment to issuance if the three-year period has not elapsed (if applicable).  
   - A schedule of projected cash flows for the securitization portfolio throughout the issuance period, and its preparation basis, accompanied by an external auditor's report on the assumptions relied upon in preparing the future cash flow schedule.  
   - Obligations and commitments of the parties regarding the securitization throughout the issuance period, cases of breach thereof, and measures taken to address them upon occurrence.  
   - Credit rating for both the originator and the securitization bonds, which shall not be lower than (BBB-), or its equivalent, subject to annual renewal throughout the issuance period.  
   - Risks that may be borne by the bonds and measures or guarantees taken to mitigate them.  
In all cases, the data in the prospectus or offering memorandum must be approved by the Chairman of the Board or Managing Director of the securitization company, the originator and coverage companies, as well as by the originator's external auditor and legal advisor to the securitization process, as applicable.

(Article Six)  
The securitization company is committed to depositing with the custodian within three business days from the date of subscription coverage for the securitization bonds at least the following:  
1- An original copy of the prospectus or offering memorandum for the bond issuance, approved by the Authority.  
2- A copy of the Authority's approval for issuing the bonds.  
3- An original copy of the transfer agreement concluded between the originator and the securitization company.  
4- An original copy of the collection agreement concluded between the originator and the securitization company or the agreed-upon party for collecting future cash flows (if any), specifying that proceeds are to be remitted to the custodian immediately upon collection.  
5- Documents related to the securitization portfolio and its associated guarantees.

(Article Seven)  
The originator or collector, as applicable, is committed to remitting the future cash flows subject to the securitization portfolio. These are deposited into a special account with the custodian immediately upon transfer for the benefit of bondholders.  
The custodian is also committed to paying the principal and interest of the securitization bonds at their due dates, from the future cash flows subject to the securitization portfolio, in accordance with the contract concluded between it and the securitization company.

(Article Eight)  
The custodian must maintain separate accounts for each securitization transaction and is not permitted to commingle or merge its own accounts with those of the securitization transactions, among themselves, or with any other accounts.  
The custodian must maintain the following accounts for each securitization transaction:  
1- An account for the proceeds of the securitization portfolio.  
2- An account for paying the principal value of the securitization bonds.  
3- An account for paying the due interest on the securitization bonds.  
4- An account for investing surplus proceeds from the securitization portfolio.  
The custodian may not use the proceeds of future financial rights and entitlements other than to pay bondholders' entitlements, after deducting fixed commissions, taxes, and fees, not exceeding what is specified in the prospectus or offering memorandum.  
The custodian may, after securitization approval, invest surplus deposited amounts in: treasury bills and/or bank deposits registered with the Central Bank of Egypt and/or money market funds and/or debt instrument funds, subject to conflict-of-interest considerations. Furthermore, this may be entrusted to one of the securities portfolio management companies, provided that the prospectus or offering memorandum specifies this.  

The custodian is also committed to preparing a monthly report on the data published in the securitization portfolio, including the data referred to in Article (312) of the Executive Regulations of the Capital Market Law, considering the nature of future cash flow securitization bonds. It must notify the Authority and bondholders or their representatives of the report after approval by the external auditor.

(Article Nine)  
This Resolution shall be published in the Egyptian Official Gazette and on the Authority's website, and shall take effect from the day following its publication in the Egyptian Official Gazette.

Chairman of the Board  
Financial Regulatory Authority  
Dr. Mohamed Fared Saleh