These are numerous and complex and largely depend upon the precise transaction structure contemplated, the nature of the assets and the nature of the Originator's business. A typical summary of systems and processes involved would be as follows:

Prior to completion of the transaction

• Analyse the assets prior to completion of the transaction, select provisional lists.

• Manage the audit process (provision of information, reports, liaison with auditors).

Completion of the transaction

• Select the final list of assets, reflect the ownership change in the system, produce completion reports, post accounting entries. Repeat processes required for substitution.

Post completion of the transaction

• Store the ownership of the receivables showing clearly which receivables are securitised and which are not.

• Set up a reconciliation process to manage the first few days of the transaction whilst cash payments are not being correctly directed (for instance, it takes 3 days for transmissions to BACS to be updated to reflect the change in ownership of the assets).

• Separate cash receipts relating to securitised receivables from those which belong to the originator (for direct debits, possibly separating receivables at the point of transmission to BACS).

• Split cash receipts into different types (principal, income and other amounts: VAT service charges and so on). Track payments received in advance of their due date, and allocate the same to outstanding payments at the appropriate time.

• Store transactions between Originator and the SPV (date of sale, price paid, amount outstanding, accrued interest, arrears of income). Deal with changes to any of the underlying receivables contracts (which may change a contract's value, outstandings or payment profiles). This can then result in a requirement to make incremental provisions, cash payments to the SPV or simply to reverse the change (some are likely not to be permitted under the terms of the Transaction documents).

• Establish procedures to track any assets sold in breach of warranty, to calculate the repurchase price and to effect the repurchase.

• Run the securitisation provisioning policy, which will normally be different to that of the Originator. Ensure that the accounting requirements can be met. These typically require that the SPV's accounts can be produced using the SPV's accounting policies, and also that the consolidated or linked presentation accounts can also be produced using the Originator's accounting policies. Often there are different accounting bases used which means that adjustments are required (for instance, between the rule of 78 and constant yield accounting methods).

• Update financial control processes so that they operate on a multi-company basis rather than on a single company basis, particularly in relation to bank reconciliations.

• Set up a periodic (usually quarterly) reporting cycle to produce the required administrator's reports and to complete the calculations typically required in order to run the transaction (ie: manage the liabilities of the SPV). This involves systems time, the production of dedicated reports, and the attention of key personnel within the organisation.

• Set up reconciliation systems to allow the amount of cash profit extraction from the securitisation to be reconciled to the amount of originator's own profit recognition policy (which will, in all likelihood, be a different amount).

Running a portfolio of receivables normally involves four basic systems which are referred to in this document as "customers", "collections", "asset management" and "accounting". Some of these functions may be embedded in one system, but the principles tend to remain the same nevertheless.

The interfaces between the systems are very important - and this is where most of the work is carried out relating to securitisation.

The following methodology is typically adopted as the basis of the originator's approach to a securitisation transaction:

1. Establish the rationale for the transaction within the originator
   Consider the extent to which originator credit risk can be left in the transaction (and therefore the amount of low-level systems work which can be avoided). Generally, the poorer the originator's credit, the more work is required as:

   • cash has be to identified more quickly;

   • less reliance is allowed on representations and warranties so a fuller data analysis and audit has to be undertaken;

   • little or no credit risk is acceptable on the originator for payments received in advance and in relation to set off risks (eg: credit balances on deposit accounts or amounts which could arise with respect to the originator's other relationships with the customer); and tight restrictions are placed upon permitted adjustments to contracts (which in some deals can be absorbed into the transaction structure).

2. Determine the high-level requirements of the transaction (see further below)
   In particular, it is important to gauge the extent to which certain risks can be accommodated within a structure - for instance, conduit transactions (a particular financing technique) can usually accept a higher level of practical risks than a public securitisation. This is a result of the role which the banks play in conduit transactions.

3. Undertake a systems and procedures review(see further below).
   Allied to this will be a determination as to the appropriate resources to involve and the amounts of (and timings of) effort which will be required.

4. Produce implementation documents and a structure note.

Following the above process, in our experience, results in transactions which complete faster and are easier to administer. Generally they are also cheaper to execute.

The principal discipline is that of documenting and agreeing all aspects of the transaction before formal, legal documentation begins.

Securitisation transactions are basically cash flow driven. This even extends to the way in which the SPV's accounts (in the UK) tend to be produced. Consequently, in attempting to determine exactly what is required of systems and processes it is usually best to start with a definition of the cash flow receipts and cash flow payments to be involved.

For instance, in the UK a typical mortgage-backed security will have a quarterly payment cycle of payments of principal and interest (based upon 3 month libor). The assets underlying this transaction (mortgages) will have monthly payments, some fixed and some variable, of principal and interest, generally calculated (in systems terms) by reference to some originator controlled base rate.

Other high level attributes of the transaction also need to be determined, for instance:

• Only certain assets will be selected for securitisation.

• The debt issued will be placed in the euromarkets.

• An SPV will be used requiring various licences.

• Credit enhancement will be provided by senior-subordination.

• Profit extraction will be effected by means of a receivables trust.

• Interest rate swaps will be required. and so on.

The above listing can usually be derived from standard heads of terms documents prepared by the relevant investment bank.

With this document in place, it is already possible to distill a variety of practical requirements. For instance, the reporting cycles can be distinguished into daily and periodic work loads, daily to match the collections cycle on the assets and quarterly to match the payments cycle on the liabilities. If a UK tax resident SPV is to be involved, then splits of receipts into principal and interest will be required.

Unfortunately it is experience which provides the best guide as to the likely requirements expected of the originator.

Particular points which can have a significant difference on the amount of work in a transaction are:

• Whether the SPV is likely to have a different accounting policy to the originator at an asset-by-asset level?

• Is a formal separation of principal and income required?

• Is future business with a customer to be included or excluded from the transaction (eg: further advances on a mortgage)?

sensible to analyse the way in which the originator actually carries out its business and operates its systems. NOTE: This section only summarises some of the work involved.

In our experience, the best way to achieve this is to examine the variety of interest groups which typically make up the originator's administrative team. The size of organisation is also relevant - and the larger the operation, the more important it is to be disciplined about the process. It is surprising how little some companies know about the real details of their systems. Discrepancies will also arise in descriptions as to how systems and processes work across different areas of the originator, in particular as to the amount of discretion which is afforded to operators of the systems!

The typical high level interest group structure for a medium-sized organisation would be:

• asset & liability systems

• accounts and financial control

• asset administration

In a large organisation it is possible that some 10 different groups can be identified who may have information relevant to the transaction contemplated.

The best starting point is generally with the bank accounts - how often are they reconciled and typically how great is the amount of "unreconciled" items? To the extent that there are problems or issues with the BACS interface, or any issues with the quality of the main receivables financing system, they usually surface in the financial control process. The extent to which manual reconciliations are carried out is also important. In a securitisation transaction, the amount of reconciliation work inevitably increases.

The accounting policies of the originator need to be established, especially if profit recognition is not on a conventional actuarial basis. Are accruals of income daily or monthly? How are they effected? What is the carrying value of the assets in the chart of account? Are the different classes of assets distinguished by product codes? How does the interface with the receivables financing system work? How does the provisioning policy work (general and specific)? and so on.

All of the above need to be related back to the entries made on the system at the asset level. Typically these should be feeding the general ledger directly via the interface from the receivables financing system. Often there are different product codes or account number structures which are used to drive different accounting policies and postings within the interface. If this is the case, then the securitisation will involve amending these codes and using the existing interface structure to direct the securitisation postings to another part of the general ledger.

The asset life cycle needs to be explored with a particular emphasis on both normal running of an asset and any unusual or discretionary activity which is permitted. For the latter, it is important to find out how the discretion is exercised in systems' terms - since this information can be used later to specify exactly how transactions on the receivables financing system should be related to information to be produced on reports to run the deal.

It is also important to establish the extent to which the terms of the assets can be varied in the course of the administration - for instance, contracts extended or payments forgiven. Often certain elements of the collections process are initiated and managed on other systems which cannot easily pick up information on which account is securitised and which is not. Consequently, there may be a need to revisit the transaction structure to remove certain cash flow items from the deal. On one transaction, the administration of defaulting assets was transferred to another system completely separated from the main receivables financing system. The originator therefore required that the recoveries on enforcement were excluded from the transaction and significant structural changes flowed from this requirement.

By establishing these requirements before legal documentation commenced, it was possible to manage the costs of what became an unusual transaction.

Once all of the aspects of the transaction have been considered in the context of the originator's existing capabilities, it is then possible to produce a working document which describes how each part of the transaction will work. The elapsed time to this point can be as little as 1 week and as much as 1 month. It largely depends upon the complexity of the transaction and the way in which the originator's systems and processes work.

The most important point is that the solutions proposed are formally documented and based upon consensus. They should be adopted in detail by all parties to the deal: internal AND external.

This is a document which covers all of the cash flow, legal, tax and accounting issues associated with the transaction. It would usually contain the principal definitions associated with the cash flow mechanics of the transaction, including definitions of principal, income, losses, provisions and the ways in which these amounts flow through any bank accounts involved. A complete analysis of the collections process would also be included.

These are a series of documents which covers the reporting cycles, timetables, and forms the basis of system specifications and enhancements and the procedures for a transaction. These are derived from the structure note and represent internal memoranda for the specialist interest groups identified during the process reviews. It is the practice of Risk Limited to take responsibility for the production of these notes, although they rapidly become adopted by the originator directly.

If the preparation set out above is effectively carried out, it is possible to ensure that even the most complex transactions are completed within short time frames and with a minimum of risk to the originator.

As legal documentation starts, the structure note rapidly becomes less important. It is usual for the note to be updated at the completion of the transaction to reflect any changes which occurred during negotiations.