While the CPF has agreed to subordinate its first charge claim over the property sale proceeds in favour of the lender, there are still complications when it comes to transferring the CPF loans to a special purpose vehicle (SPV). Transferring the assets to a SPV is commonly used in structured finance to achieve asset pool segregation.
To overcome this, as GlobalCapital Asia first reported in March, DBS had been in talks with the CPF to come out with a structure whereby a trust would be declared over the cover assets. The beneficial interest of that trust would then be reassigned to the SPV while the cover assets would still sit on the bank’s balance sheet.
“The declaration of trust [DoT] is a technique to ensure that covered bond investors have priority over the cashflows of those assets, including the CPF loans,” said Ralf Grossman, Société Générale’s head of covered bond origination.
But in order for DoT to come to fruition, the parties involved needed the Monetary Authority of Singapore (MAS) to give it the go-ahead.
That finally came in June when MAS announced its feedback to a covered bond consultation paper that it had released at the start of the year. The ability for banks to declare a trust over the cover assets was introduced as part of the consultation.