hard · Asset-Backed Securities
Under US GAAP (ASC 810), a sponsor must consolidate an ABS trust if it is determined to be the 'Primary Beneficiary' of the Variable Interest Entity (VIE).
Which two factors are used to make this determination?
- The legal ownership of more than 50% of the trust's voting shares and the ability to appoint the majority of the Board of Directors.
- The power to direct the activities that most significantly impact the VIE's economic performance and the obligation to absorb losses/right to receive benefits that could be significant.
- The retention of 5% credit risk under Dodd-Frank and the status of the entity as a 'Qualified Special Purpose Entity' (QSPE).
- The rendering of a 'True Sale' legal opinion and the transfer of all 'Effective Control' over the assets to the SPE.
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