Purchase With Recourse (PWR)

What is Purchase With Recourse (PWR)?

  • Approved Seller (AS) sells loans/ receivables to Cagamas with an obligation to repurchase the receivables on maturity of the contract.
  • In substance, Cagamas funds AS against security of the underlying loans/ receivables.
  • Purchase at par value based on previous month end balance (loans/ receivables amount). 
  • At end of tenure, loans/ receivables to be repurchased by the AS at the estimated amortised value of the loans/ receivables (e.g. 30% of loans/ receivables amount). 
  • The remaining balance (e.g. 30% of loans/ receivable 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 cut-off date
  2. Rate Type: Fixed / Floating / Convertible
  3. Instalment Frequency: Monthly / Quarterly / Semi-Annually / Annually
  4. Repurchase: Repurchase of defective debts on quarterly intervals
  5. Replacement: Replacement of repurchased debts by way of sale of debts of equivalent value
  6. Rollover Option: At maturity, the AS will be given option to repurchase the pool of debts sold to Cagamas or continue the contract for a further review period based on the new rate agreed upon between Cagamas and the AS.

Benefits of PWR

  1. Competitive pricing to sellers by tapping the capital market through Cagamas bonds which is rated AAA.
  2. Avenue to raise funds at fixed rates (hedging against rising interest rates). 
  3. Diversify funding resources.
  4. No fee and transaction cost - no facility/ commitment fee, legal documentation cost, stamp duty, rating agency fee.
  5. Fast turnaround time.
  6. Loans/ financing remain on AS books.