In a Special Purpose Trust or (SPT) arrangement, the client institution sells its assets or cash flows from its receivables to Land Bank of the Philippines – Trust Banking Group (LBP-TBG) (acting as an SPT) through a true sale and without recourse basis. LBP-TBG as owner of the assets or cash flows then issues asset-backed securities or ABS evidencing claims to the cash flows. Proceeds from the issuance of the ABS is then used by the SPT to finance the purchase of the assets.

 

Assets are typically composed of receivables such as housing loans, auto loans, credit card receivables, lease payments, and trade receivables, provided that such receivables have an expected cash payment stream.

 

As an SPT, LANDBANK-TBG holds the cash flows of the asset pool, including the underlying right to collect, and uses these cash flows to service the principal and coupon payments due to the ABS holders as they fall due. The SPT, through an entity authorized to perform trust functions (other than the SPT administrator), manages the cash flows and monitors compliance with the underwriting features of the securitization, all for the benefit of the ABS holders. Although control over the asset pool is removed from the originator, the originator is allowed to service the asset pool and act as servicer for this purpose.

 

This specialized trust service supports capital market development and financing, as provided under “The Securitization Act of 2004”.