Debt Cap: the available amount: regulations on repos and quasi repos
Interest payable under debtor repo or debtor quasi repo
Where a company sells securities as collateral and agrees to repurchase (repo) the same or similar securities at a later date, the money received is legally the proceeds of sale of the securities. However, economically the money received is a loan, the debtor repo rules at CTA09/S548 to S551 provides that where a company (the borrower) has a debtor repo the cash received is deemed to be a loan relationship.
A quasi-debtor repo is similar to a debtor repo but is on non-standard terms (for instance the borrower may not be the same company as that which agrees to re-purchase the securities but the company that does repurchase the securities is paid to assume the borrowers obligations). More details on debtor and quasi-debtor repos are at CFM43640.
Payments under debtor and quasi debtor repos are financing expenses for relevant group companies but equivalent amounts will not be brought into account in the consolidated accounts of the worldwide group. The Available Amount Regulations deal with this by including within the available amount payments under debtor and quasi debtor repos.
Interest payable under structured finance arrangements
Structured finance schemes involve the disposal of an asset with a predictable income scheme by a company (‘the borrower’) in return for a lump sum from another person (‘the lender’). The lump sum is equivalent to the present value of the future income stream which will more than likely revert to the borrower at the end of the arrangements. Without special rules the borrower would be able to obtain relief for both the finance charge (interest) and principal. (CFM73000).
The structured finance rules at CTA10/PT16/CH2 provide that the finance charge paid by the borrower is deemed to be a loan relationship and is a financing expense for relevant group companies. However, an equivalent amount will not be brought into account in the consolidated statements of the worldwide group. The Available Amount Regulations deal with this by including within the available amount sums brought into account under the structured finance rules.