Document ID: chunk:federal_register_of_legislation:F2024L01074:body:0:p18
Version: federal_register_of_legislation:F2024L01074
Segment Type: other
Provision Reference: 
Character Range: 48040–51891

Aa1      AA+
                                                                                                                 AA                  Aa2      AA
                                                                                                                 AA-                 Aa3      AA-
A+                                                                                                               A1                  A+       25
A                                                                                                                A2                  A
Unrated exposure to an Australian local council

 1.          An ADI that uses the FIRB approach may assign a 25 per cent LGD to senior exposures to borrowers that operate large domestic public infrastructure assets or utilities that provide essential services to the economy where the borrower satisfies one of the following on an ongoing basis:
        1.           the borrower is a corporation wholly or majority owned by the Australian Government or an Australian State or Territory government and is assessed to have a high degree of government oversight of its operations, investments and financing strategies, and the likelihood of government capital contribution in the event of distress is assessed to be high;
        2.           the borrower has in place a relevant security agreement with the ADI and a contractual agreement (e.g. a tripartite agreement) with the Australian Government or an Australian State or Territory government that provide the ADI with the right to step in and remedy (including transfer of ownership if necessary) relevant 'events of default' specified in material contractual documents (e.g. a public private partnership project agreement). In addition, where the borrower's revenue is based on fees from service users, demand for the service is assessed to be strong by the ADI; or
        3.           the borrower's revenue is subject to rate-of-return regulation and the ADI deems the operation to be a natural monopoly within the service region with high barriers to entry for an alternative supplier.
 2.          Where an ADI applies the FIRB approach, it may use the supervisory LGD estimates and collateral haircuts detailed in Table 4 as inputs to the LGD calculation for senior exposures that are not secured by eligible collateral but have eligible recovery value. To qualify, the ADI must have a perfected security interest in the collateral. The LGD must be calculated in accordance with the methodology detailed in paragraph 16 to 18 of this Attachment, where the LGD for the secured portion (LGDSi) is as specified in Table 4 and the LGD for the unsecured portion (LGDU) is as specified in paragraph 8 of this Attachment.

 1.               Supervisory LGD estimates and collateral haircuts for exposures with eligible recovery value
                                                                                                                      LGD                                     HC
                                                                                                                      (%)                                     (%)
Physical collateral that does not meet the minimum requirements detailed in Attachment E to this Prudential Standard  Corporate: 40                           40
                                                                                                                      Sovereign or financial institution: 45
Australian water entitlements
Carbon credits or allowances

Senior unsecured exposures under the AIRB approach
 1.          An ADI that uses the AIRB approach must apply a 50 per cent LGD to all senior unsecured exposures, except in the case of senior exposures to borrowers that operate large domestic public infrastructure assets or