Technical Standards for Determining the Minimum Requirements and Characteristics of Assets Eligible for Securitization

TECHNICAL STANDARDS FOR DETERMINING THE REQUIREMENTS AND SUSCEPTIBLE TO SECURITIZATION Approval: 12/14/2023 Validity: 01/02/2024

THE COMMITTEE OF STANDARDS OF THE CENTRAL BANK OF RESERVE OF EL SALVADOR,

CONSIDERING:
I. That Article 45 of the Asset Securitization Law establishes that assets eligible for Securitization are those with the capacity to generate periodic and predictable cash flows, as well as others of an analogous nature that are determined, provided they meet the characteristics contemplated by said legal provision.

II. That Article 7, letter q) of the Law on Supervision and Regulation of the Financial System establishes that securitization companies are subject to the provisions of said Law and therefore to the supervision of the Superintendence of the Financial System.

III. That Article 99 of the Law on Supervision and Regulation of the Financial System establishes that the Central Bank of Reserve, by virtue of said Law, is the institution responsible for approving the technical regulatory framework that must be issued in accordance with this Law and other laws regulating supervised entities. In fulfilling this responsibility, the Central Bank of Reserve must ensure that the regulatory framework applicable to the financial system is periodically reviewed, seeking its timely update.

IV. That in accordance with Article 101, fourth paragraph of the Law on Supervision and Regulation of the Financial System, the powers to approve, modify, and repeal technical norms that must be complied with by members of the financial system and other supervised entities, which were attributed to the Superintendencies or the Boards of Directors of the Superintendencies whose organic laws were repealed by this Law, are transferred to the Central Bank of Reserve of El Salvador.

THEREFORE,

by virtue of the regulatory powers conferred by Article 99 of the Law on Supervision and Regulation of the Financial System,

AGREES to issue the following:

TECHNICAL STANDARDS FOR DETERMINING THE REQUIREMENTS AND MINIMUM CHARACTERISTICS THAT ASSETS ELIGIBLE FOR SECURITIZATION MUST POSSESS

CHAPTER I
OBJECT, SUBJECTS, AND TERMS

TECHNICAL STANDARDS FOR DETERMINING THE REQUIREMENTS AND SUSCEPTIBLE TO SECURITIZATION Approval: 12/14/2023 Validity: 01/02/2024

Object
Art. 1.- These Standards aim to establish the minimum requirements and characteristics that assets eligible for securitization must contain.

Subjects
Art. 2.- The subjects obligated to comply with the provisions established in these Standards are the Securitization Companies.

Terms
Art. 3.- For the purposes of these Standards, the terms indicated below have the following meaning:
a) Assets generating periodic and predictable cash flows: Those with the capacity to generate cash inflows frequently and at determinable intervals, allowing for reasonable anticipation of the balances received under this concept; b) Central Bank: Central Bank of Reserve of El Salvador; c) Future Financial Flows: Those flows that do not exist on the date of initiating the securitization process but for which there is a reasonable and well-founded expectation that they will exist in the future in a periodic and determinable manner; corresponding to rights acquired legally or contractually that give rise to payment or collection flows in favor of the originator; d) Law: Asset Securitization Law; e) Superintendence: Superintendence of the Financial System; and f) Securitization Company: Legal person that administers Securitization Funds.

CHAPTER II
ON ASSETS ELIGIBLE FOR SECURITIZATION

Assets eligible for securitization
Art. 4.- The following are considered assets eligible for securitization:
a) Those with the capacity to generate periodic and predictable cash flows; b) Rights over future financial flows; c) Other rights of an analogous nature to the above, which are determined by the Superintendence, which must in all cases possess uniform documentation and have supported payment history as appropriate; and d) Existing or to-be-constructed real estate, provided that the object of that securitization process is, indistinctly, the financing, development, construction, yield, or expansion of real estate projects and that the requirements established for such effect in the Law and in the Technical Standards for Real Estate Securitization Funds (NDMC-20), approved by the Central Bank through its Committee of Standards, are met.

TECHNICAL STANDARDS FOR DETERMINING THE REQUIREMENTS AND SUSCEPTIBLE TO SECURITIZATION Approval: 12/14/2023 Validity: 01/02/2024

Assets generating periodic and predictable cash flows Art. 5.- The following are part of assets generating periodic and predictable cash flows:
a) Loan contracts; b) Securities representing obligations; c) Dematerialized or book-entry securities representing obligations; d) Financial Leasing contracts, provided they have been granted in accordance with what is established in the relevant Law; e) Concession contracts granted by the State; f) Service Provision contracts; g) Goods sales contracts; h) Securities registered in the Public Stock Exchange Registry; i) Securities representing public debt; j) Rental contracts; k) Educational service fees; l) Discounted documents; m) Collection of insurance policy premiums; and n) Rights over future financial flows.

Assets with uniform documentation and supported payment history Art. 6.- For the purposes of Article 45 of the Law, it will be understood that a set of assets possesses uniform documentation when there is similarity regarding the covenants, waivers, submissions, particular and general conditions, and guarantees securing them, and generally, similarity regarding the content of clauses contained in the legal documentation supporting the assets intended to be the object of Securitization, for example, that in all of them the same method for dispute resolution has been agreed upon, the same method for handling defaults has been agreed upon, or the same currency of payment has been agreed upon.

It will be understood that a set of assets possesses supported payment history when, from the analysis made of them, it is possible to reliably determine the history in the payment of amortizations, rents, installments, and in general, any kind of periodic payments that under any concept must be paid to the originator prior to the celebration of the act of transfer of assets to the Securitization Fund, and as a consequence of the realization of commercial operations of any nature, regardless of the term, number of payments or amortizations made prior to the granting of the aforementioned act.

Art. 7.- The transfer of any kind of assets that are transferred by an originator with the object of integrating a Securitization Fund must also include their corresponding accessories, according to the nature of the assets being transferred, such that if a portfolio of mortgage credits is transferred, said transfer must include, for example, all the documentation that served as

TECHNICAL STANDARDS FOR DETERMINING THE REQUIREMENTS AND SUSCEPTIBLE TO SECURITIZATION Approval: 12/14/2023 Validity: 01/02/2024

support for the originator to approve the credit applications subject to transfer.

Assets of homogeneous nature
Art. 8.- For the purposes of Article 45 of the Law and specifically at the moment of integration of the Securitization Fund, a set of assets will be considered to be of homogeneous nature when there is equality regarding the species of assets intended to be securitized, such that assets of different species cannot be the object of the same securitization process, for example, a portfolio of credits backed by mortgage guarantee and financial leasing contracts.

Minimum requirements that assets eligible for securitization must meet Art. 9.- Assets intended to be the object of securitization must meet the following minimum requirements:
a) They must be free of any kind of lien and any limitation on the right of ownership; b) They must not be subject to suspensive or resolutive conditions; c) They must be free and solvent from the payment of any kind of taxes, fees, or special contributions that must be paid by reason of them; d) They must be free of any judicial, conciliatory, mediation, or arbitration process; e) Their origin must not stem from illicit or fraudulent acts; f) They must be duly recorded or registered in favor of the originator in the respective book or registry, according to their nature, provided that compliance with such formality is required in accordance with the Law; g) There must not be instruments presented in favor of third parties, marginal to the registry inscriptions supporting said assets; h) In the case of assets guaranteed with securities, these must be duly registered in favor of the originator in the corresponding registry, if it is necessary to comply with such requirement in accordance with the Law; i) They must have been granted or constituted, as appropriate, in accordance with the formalities required by the relevant Law, according to the nature of the assets intended to be the object of securitization; and j) When applicable, they must be under the custody of an entity previously authorized by the Superintendence for such effect.

Art. 10.- In the specific case of the securitization of real estate and infrastructure works projects, the provisions established in the Technical Standards for Real Estate Securitization Funds (NDMC-20), approved by the Central Bank through its Committee of Standards, shall apply.

TECHNICAL STANDARDS FOR DETERMINING THE REQUIREMENTS AND SUSCEPTIBLE TO SECURITIZATION Approval: 12/14/2023 Validity: 01/02/2024

CHAPTER III
OTHER PROVISIONS AND VALIDITY

Sanctions
Art. 11.- Non-compliance with the provisions contained in these Standards will be sanctioned in accordance with what is established in the Law on Supervision and Regulation of the Financial System.

Repeal
Art. 12.- These Standards repeal the Technical Standards for Determining the Requirements and Minimum Characteristics that Assets Eligible for Securitization Must Possess (RCTG-11/2009), approved by the Board of Directors of the Securities Superintendence in Session No. CD-32/2009 of November 26, 2009, whose Organic Law was repealed by Legislative Decree No. 592 containing the Law on Supervision and Regulation of the Financial System, published in the Official Journal No. 23, Volume No. 390, dated February 2, 2011.

Unforeseen Aspects
Art. 13.- Aspects not provided for in the regulatory matter in these Standards will be resolved by the Central Bank through its Committee of Standards.

Validity
Art. 14.- These Standards will enter into effect as of January 2, 2024.