Purchase With Recourse (PWR)

What is Purchase With Recourse (PWR)?

  • Approved Seller (AS) sells loans to Cagamas with an option, at the maturity of the contract, to repurchase the pool of loans sold or execute a new contract for a further contracted review period based on new terms.
  • The loans are purchased at their book value, i.e., purchase at par value based on previous month end balance.
  • At end of tenure, loans to be repurchased by the AS at the estimated amortised value of the loans (e.g. 30% of loan amount). 
  • The remaining balance (e.g. 30% of loan amount) is to be repaid in lump sum at maturity.

Overview of PWR

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Product Features

  1. Purchase Price: Principal balance outstanding as at the purchase date
  2. Rate Type: Fixed / Floating / Convertible
  3. Instalment Frequency: Monthly / Quarterly / Semi-Annually / Annually
  4. Repurchase: Repurchase of defective loans on quarterly intervals
  5. Replacement: Replacement of repurchased loans by way of sale of new loans of a value which is equivalent to the repurchased value
  6. Rollover Option: At maturity, the AS will be given an option to repurchase the pool of loans sold to Cagamas or execute a new contract for a further contracted review period based on new terms.

Benefits of PWR

  1. Competitive pricing to the AS by tapping the capital market through Cagamas bonds which are rated AAA.
  2. Avenue to raise funds at fixed/floating rates (hedging against rising interest rates). 
  3. Diversify funding resources.
  4. No fee and transaction cost to the AS.
  5. Fast turnaround time.
  6. Loans remain on the book of the AS to maintain the asset growth.