Prior Charges 

Use

This function determines the value of higher ranking order charges (on a collateral object) in a collateral agreement. The prior charges can belong to collateral agreements maintained in own bank or any external banks. The system calculates prior charges for each collateral object-collateral agreement assignment. The system uses the value of the prior charges in further collateral calculations such as the calculation of collateral value and in the distribution of collateral value to the lending ranges.

 

Prior Charges in the Scenario for Collective Real Estate Lien

A collective real estate lien is identified using the indicator Coll Land Charge (set in the Specific tab page in a collateral agreement). In this scenario, you must create separate charges by assigning the real estate lien to each of the individual real estate objects. The collateral taker can however logically liquidate only one of these charges. The collateral taker can choose the real estate for which the collective real estate lien can be liquidated. You must therefore represent all the remaining unliquidated charges as prior charges.

 

Activities

The system performs the following activities to determine value for prior charges:

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       1.      Determines the order of collateral objects assigned to collateral agreements using their ranking orders.

       2.      Identifies the organizational role of the collateral agreements that identify if the charges belong to collateral agreements of own bank or any external banks.

You specify the organizational role in the Implementation Guide (IMG) Customizing for collateral agreement types by choosing Collateral Management ® Collateral Agreements ® Define Collateral Agreement Types.

       3.      Determines the type of declaration of purpose (wide or narrow) that is valid for collateral agreement. If the flag global is set in the Customizing for collateral agreement types, then the collateral agreement is set to have a wide declaration of purpose.

       4.      Calculates the prior charges using one of the following equations:

Collateral agreement scenario	Prior charge is equal to:
Deal-specific collateral agreement (narrow declaration of purpose)	Value of collateral right [current risk]
Global collateral agreement (wide declaration of purpose)	Assessment value

Example

The following example illustrates the calculation of prior charges:

Collateral object -real estate = 500   Collateral agreement C1 (internal) Asset = 200 Collateral right = 150 Ranking order – 1   Collateral agreement C2 Asset = 300 Collateral right = 200 Ranking order 2   Prior charges for collateral agreement C2 = Collateral right of C1 = 150

The charges assigned in following collateral agreement scenarios can be created as prior charges:

·        Non-recurrent loan undertakings (Real estate lien)

In a non-recurrent loan undertaking, the bank agrees not to use the real estate lien for further collateralization after repayment of the existing receivables

●     Lessor’s lien (Transfer)

In a lessor’s lien where a waiver is not available. Normally, a waiver by land charge owner is issued with a lessor’s lien. This waiver allows the use of collateral objects that were transferred along with the main collateral.

●     Restitution claims (Real estate lien)

For restitution claims such as the rights to discharge issued in favor of a third-party.

●     Liability of accessories (Transfer)

If a waiver is not available for using accessory collateral that are part of transfer.

●     General Business Condition (GBC) (Pledge or Assignment)

Non-availability of waiver in a GBC scenario.