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
- Purchase Price: Principal balance outstanding as at the cut-off date
- Rate Type: Fixed / Floating / Convertible
- Instalment Frequency: Monthly / Quarterly / Semi-Annually / Annually
- Repurchase: Repurchase of defective debts on quarterly intervals
- Replacement: Replacement of repurchased debts by way of sale of debts of equivalent value
- 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
- Competitive pricing to sellers by tapping the capital market through Cagamas bonds which is rated AAA.
- Avenue to raise funds at fixed rates (hedging against rising interest rates).
- Diversify funding resources.
- No fee and transaction cost - no facility/ commitment fee, legal documentation cost, stamp duty, rating agency fee.
- Fast turnaround time.
- Loans/ financing remain on AS books.