Technical Standards for Real Estate Securitization Funds

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

CONSIDERING:

I. That by Legislative Decree No. 470, of November 15, 2007, published in Official Diary No. 235, Volume 377, of December 17 of the same year, the Asset Securitization Law was issued, reformed by Legislative Decree No. 332 of April 7, 2016, published in Official Diary No. 78, Volume 411 of April 28, 2016; and reformed again by Legislative Decree No. 351 of April 21, 2016, published in Official Diary No. 85 Volume 411 of May 9, 2016.

II. That by Legislative Decree No. 56, of July 13, 2018, published in Official Diary No. 146, Volume 420 of August 10, 2018, article 46 of the Asset Securitization Law was modified.

III. That article 46 of the Asset Securitization Law establishes that Securitization Funds may be constituted and integrated with existing or to-be-constructed real estate assets, provided that the object of that securitization process is, indistinctly, the financing, development, construction, performance, or expansion of real estate projects, and that the Committee of Norms of the Central Reserve Bank of El Salvador will issue the necessary technical standards for the application of the article.

IV. That article 35, subsection h) of the Law on Supervision and Regulation of the Financial System, establishes that directors, managers, and other officials holding positions of direction or administration of the members of the financial system are responsible for the adequate dissemination of information, the timely availability of relevant information regarding the performance of their activities, the transfer of operations, as well as the economic and financial status for decision-making by their governing bodies.

V. That article 35, subsection m) of the Law on Supervision and Regulation of the Financial System, stipulates that directors, managers, and other officials holding positions of direction or administration of the members of the financial system must inform the Superintendence of all relevant facts, as determined in the technical regulations issued for that effect.

VI. That article 99, subsection c) of the Law on Supervision and Regulation of the Financial System, establishes that the Central Reserve Bank, through its Committee of Norms, will issue criteria for the valuation of assets and liabilities, among others, with the purpose of reflecting the real liquidity and solvency situation of the members of the financial system.

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VII. That article 9, second paragraph, numerals 10 and 11 of the Special Law for the Prevention, Control, and Sanction of Money Laundering, Terrorism Financing, and Financing of the Proliferation of Weapons of Mass Destruction, regulates that obligated subjects must establish internal audit mechanisms, using the principle of risk-based administration, to verify compliance with what is prescribed in said Law; and have external or specialized audit in risk management to evaluate and issue reports on the evaluation of the management of the prevention system. (6)

VIII. That article 15, first paragraph of the Special Law for the Prevention, Control, and Sanction of Money Laundering, Terrorism Financing, and Financing of the Proliferation of Weapons of Mass Destruction, establishes that obligated subjects, in order to identify their clients and users, including the controller, recipient, or ultimate beneficiary, manage the risks associated with them and obtain appropriate information about the commercial relationships established or their continuity, must take reasonable measures to carry out due diligence procedures. (6)

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 REAL ESTATE SECURITIZATION FUNDS

CHAPTER I OBJECT, SUBJECTS, AND TERMS

Object Art. 1.- These Standards aim to establish the provisions applicable to Real Estate Securitization Funds regarding their operation, operationality, revelation, and submission of information, as well as other guidelines that must be taken into account within the real estate securitization process.

Subjects Art. 2.- The subjects obligated to comply with the provisions established in these Standards are the Securitizers authorized by the Superintendence of the Financial System.

Terms Art. 3.- For the purposes of these Standards, the terms indicated below have the following meaning: a) Central Bank: Central Reserve Bank of El Salvador; b) Real Estate Asset(s): In accordance with what is provided in article 561 of the Civil Code, real estate assets shall be understood as lands and buildings and constructions of all kinds adherent to the soil; c) Stock Exchange: Stock Exchange constituted in El Salvador and registered in the Superintendence of the Financial System; d) House: Stockbrokerage House, authorized and registered in the Superintendence of the Financial System; e) Financial Conglomerate: In accordance with article 113 of the Banking Law, it is a set of companies characterized by the fact that more than fifty percent of their respective share capital is owned by a controlling company, which is also a member of the Conglomerate. The controlling company of the Conglomerate may be a company of exclusive purpose or a bank constituted in the country; f) Securitization Fund: Independent patrimony, different from that of the Securitizer and the Originator, formed by a set of assets and liabilities that result or are integrated as a consequence of the development of the respective securitization process. The assets of the Fund will have the main purpose of generating payments for the securities issued against it; g) Real Estate Securitization Fund: Securitization Fund that may be constituted and integrated with existing or to-be-constructed real estate assets, provided that the object of that securitization process is, indistinctly, the financing, development, construction, performance, or expansion of real estate projects and the minimum requirements established in article 46 of the Asset Securitization Law are met; h) Business Group: In accordance with article 5, subsection n) of the Securities Market Law, it is that in which a company or set of companies have a common controller, who acting directly or indirectly participates with fifty percent as a minimum in the share capital of each of them or that have common shareholders who, directly or indirectly, are holders of fifty percent as a minimum of the capital of another company, which allows to presume that the economic and financial performance is determined by common interests or subordinate to the group; i) Investor: Natural or legal person interested in acquiring securities of a Real Estate Securitization Fund; j) Board of Directors: Collegiate body in charge of the administration of the entity, with supervision and control functions; k) Special Law for the Prevention of Money Laundering: Special Law for the Prevention, Control, and Sanction of Money Laundering, Terrorism Financing, and Financing of the Proliferation of Weapons of Mass Destruction; (6)

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l) Market Law: Securities Market Law; m) Securitization Law: Asset Securitization Law; n) Supervision and Regulation Law: Law on Supervision and Regulation of the Financial System; o) Originator: Person owning assets susceptible to securitization in accordance with the Asset Securitization Law; p) Offering Prospectus: Offering prospectus of the securities; q) Registry: Public Stock Registry of the Superintendence of the Financial System; r) Representative of Security Holders: Legal person in charge of representing the owners of the securities of each Fund according to what is established in the Law; s) Superintendence: Superintendence of the Financial System; t) Security Holders: Holders of Securities of a Securitization Fund; u) Securitizer: Legal person that administers the Securitization Funds; and v) Securities: Securitization Securities.

CHAPTER II GENERAL PROVISIONS ON REAL ESTATE SECURITIZATION

Applicable Regulations Art. 4.- All regulations in which Securitizing Companies and the referred Funds are subjects of application are applicable to Real Estate Securitization Funds.

On Real Estate Securitization Funds Art. 5.- Real Estate Securitization consists of the transfer of real estate assets to an autonomous patrimony with the purpose of issuing public offer securities against it. In these securitization processes, debt securities or securities representing participation in the patrimony of a Securitization Fund may be issued, according to what is established in article 73 of the Securitization Law. Real Estate Securitization Funds may be constituted and integrated with existing or to-be-constructed real estate assets, provided that the object of that securitization process is, indistinctly, the financing, development, construction, performance, or expansion of real estate projects. (1) Eliminated (2) The term of the issuance must be based on the needs of the originator and the object of the Securitization process. Said term must be supported, at least, on the following information: (4) a) The technical explanatory document of the types of real estate assets that the Securitization Fund will develop, in accordance with what is established in article 9 of these Standards; (4) b) The parameters indicated in the Securitization Contract regarding the acquisition of financing, if applicable, in accordance with what is established in article 18 of these Standards; (4) c) The technical-economic feasibility study of the real estate assets to be constructed, as established in article 29 of these Standards; and (4) d) The financial projections accompanying the project, in accordance with what is established in article 24 and Annex No. 1 of these Standards. (4)

Art. 6.- Real Estate Securitization Funds must define in the securitization contract, securities offering prospectus, and in all information regarding said Funds disseminated by the Securitizer through its website or any advertising material, the object thereof, specifying for this purpose whether they will carry out the sale, the administration of real estate, or both activities, in accordance with what is established in article 46 of the Securitization Law.

Constitution of the Real Estate Securitization Fund Art. 7.- For the constitution of the Real Estate Securitization Fund and the issuance of its securities, the provisions established in the "Technical Standards on the Minimum Content of the Securitization Contract" (NDMC-28) and the "Technical Standards for the Authorization of Registration of Issuers and Public Offer Securities Issuances" (NRP-10), approved by the Central Bank through its Committee of Norms, must be observed. (5)

Requirements of the Real Estate Assets Art. 8.- The real estate assets intended to be securitized must meet the following particular requirements: a) Be valued by experts who belong to the Registry of Appraisers of the Superintendence or a registry recognized by it; b) The issuance presented for authorization by the Superintendence must be based on real estate assets whose appraisal has a validity of no more than twelve months prior to the start date of the issuance authorization process; c) In the case of real estate assets with buildings or with works in progress of construction, be insured against risks such as construction all-risk insurance, fire and allied lines, earthquake, flood, or other accidents depending on the nature of the real estate asset and according to the object of the Real Estate Securitization Fund. When it comes to lands on which construction projects will be carried out and designs and plans are possessed, a document issued by the insurance company must be available stating the insurance offer, which must include aspects such as coverages and excluded risks, projected start date of the policy, among others; d) Be free and solvent from the payment of any kind of taxes, fees, or special contributions that must be paid by reason of them; e) Be free of any judicial, conciliatory, mediation, or arbitration process;

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f) There must not be instruments presented in the Registry of Real Estate and Mortgages in favor of third parties, on the registry inscriptions that cover said real estate assets, at the time of the integration of the Securitization Fund referred to in article 48 of the Securitization Law; g) Must not originate from illicit or fraudulent acts; and h) Be duly recorded or registered in favor of the originator in the respective property registry.

Content of the Real Estate Securitization Fund Contract Art. 9.- In the case of real estate securitization, regarding the content of the Securitization Contract, the provisions of articles 47 and 71 of the Securitization Law and the "Technical Standards on the Minimum Content of the Securitization Contract" (NDMC-28), approved by the Central Bank through its Committee of Norms, that are applicable must be followed. Additionally, the contract must consider the following additional aspects: (5) a) Description of the policy that the Securitizer will apply regarding the development, performance, or expansion of real estate projects or existing real estate assets; b) Indication of the minimum conditions required of the construction companies that will develop the construction project with the real estate assets incorporated into the Securitization Fund and that their fees will be within market conditions, for which the Securitizer will establish within its internal controls, a procedure for their selection; c) Indication of the policy that the Securitizer will apply regarding the supervision of the works of the projects to which the real estate assets are destined and establish the selection requirements for the site supervisors; d) Specification of the selection policy that will be applied to the appraisers entrusted with the valuation of the real estate assets to be incorporated into the Securitization Fund; e) Indication of the real estate asset valuation policy that will be applied over time; f) Stipulation of the real estate asset administration policy, regarding sale, leasing, subleasing, or any other type of transaction that generates the financial flows of the Securitization Fund; g) Description of the financing policy that the Securitization Fund will apply, if applicable, in concordance with article 46 of the Securitization Law, establishing the maximum financing limits on the value of the autonomous patrimony, levels, causes, and administration thereof; h) Description of policies related to investments, liquidity, and acquisition and sale of real estate assets; i) Process of liquidation of the Fund and the way to administer this process, as well as the powers and obligations of the liquidator; j) Indication of the situations in which the Extraordinary General Meeting of Security Holders may authorize the contracting of financing, as well as the transfer or granting of the real estate assets of the Securitization Fund as collateral; k) Indication that the Securitizer has due diligence policies referred to in the Special Law for the Prevention of Money Laundering; (6) l) Consignment of the additional powers that the liquidator of the Securitization Fund will have, such as the possibility of demanding valuations prior to the execution of the liquidation of the real estate assets; m) Specification of insurance policies contracted or to be contracted; n) Specification of the dividend or interest policy, as well as the periodicity and process for determining the amount to be distributed, in case of issuing participation securities; and o) Conditions for the payment of securitization securities.

The Securitizer must present an annex to the Securitization Contract, an executive format technical explanatory document on the types of real estate assets that will integrate the Securitization Fund, whether they are constructed or to be developed. For this purpose, regarding construction projects, the following information must be detailed: (4) a) General characteristics of the project: Location, spaces and structures that compose it, total land area, total built area, number of levels in case of buildings, description of green zones, amenities, among others; (4) b) Specific characteristics of the project: Distribution and areas developed for each of the components of the project, number of parking spaces, characteristics of the type of structure used in construction, implemented anti-seismic system, energy efficiency technology, among others; (4) c) Possible start and end dates of the project in accordance with the term of the issuance; and (4) d) Mode of execution (construction in stages and the estimated time for each). (4)

For constructed real estate assets that integrate the Securitization Fund, the following information must be detailed: (4) a) Use or vocation of the real estate asset; (4) b) Indication of the object of the Securitization process, in accordance with what is established in article 46 of the Securitization Law; (4) c) Needs for repairs, expansions, and improvements with their respective cost estimates, issued by a construction specialist; (4) d) Number of current or potential tenants, indicating their percentage with respect to one hundred percent of them; and (4) e) Possible start and end dates of the project in accordance with the term of the issuance and the object of the Securitization process. (4)

In the case of Real Estate Securitization Funds for construction projects, it must additionally include the criteria and procedures to be applied for the supervision and follow-up of works, the above, being in addition to the technical-economic feasibility study developed in article 29 of these Standards. (4)

Documentation to be Presented by the Securitizer Art. 10.- In addition to what is established in the "Technical Standards for the Authorization of Registration of Issuers and Public Offer Securities Issuances" (NRP-10), approved by the Central Bank through its Committee of Norms, the Securitizer, for the authorization of the registry entry of the issuance, must present to the Superintendence the following information and documentation: (5) a) Document issued by an insurance company stating that the real estate asset in question, insofar as it has buildings or constructions in progress, is duly insured at least against the risks indicated in subsection c) of article 8 of these Standards; b) Current solvency certificates issued by the competent authorities, stating that the real estate asset subject to securitization is free and solvent from the payment of any kind of taxes, fees, or special contributions, as well as fiscal and municipal, that must be paid by reason of them; c) Certified copy of the construction permit necessary for the realization of the construction project, which must be approved by the corresponding authority in the jurisdiction where the real estate asset is located. It will be the responsibility of the Securitizer to ensure that the project has the necessary permits for its development, attending to the object of the securitization process; d) Sworn declaration signed by the legal representative or attorney-in-fact of the Originator, in which it is declared that as of that date, the real estate asset subject to securitization is free of any judicial, conciliatory, mediation, or arbitration process and that its origin does not come from illicit or fraudulent acts; e) Certificate signed by the legal representative of the Securitizer, stating that it has verified that the construction company meets the requirements established in article 32 of these Standards; f) Certification of the agreement of the Board of Directors of the Securitizer, in which the acquisition of the real estate assets was agreed; and g) Sworn declaration signed by the Legal Representative of the Securitizer, expressing that it has acted with due diligence and complied with what is required in the Securitization Law, having verified that all necessary requirements have been met to incorporate the real estate asset into the Fund and in the case of Real Estate Securitization Funds for construction projects, it must be indicated that the requirements have been met