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Section 301. Item 1101 of Regulation AB
us SEC - C&DI - Regulation AB and Rules
301.01 Item 1101(j)
The definition of servicer in Regulation AB is a principles-based definition that looks to the functions that the entity performs. See SEC Release No. 33-8518 Section V.D. An entity falls within the definition of servicer if it is responsible for the management or collection of the pool assets or making allocations or distributions to holders, regardless of the entity’s title (vendor, trustee, etc.). [12/09/14] (Reg AB Telephone Interpretation 3.01)
301.02 Item 1101(l)
Whether a party is considered a “sponsor” involves a facts and circumstances analysis of whether its actions bring it within the definition in Item 1101(l) of Regulation AB. There are circumstances where more than one originator acts as a “sponsor,” such as in the case of a “rent-a-shelf” where more than one originator offers to sell the underlying assets to back the asset-backed securities. [12/30/05] (Reg AB Telephone Interpretation 4.01)
301.03 Item 1101(c)
Question: An insurance company creates a special purpose vehicle to issue a single series of notes. The insurance company enters into a funding agreement with the special purpose vehicle. Principal and interest payments on the notes consist exclusively of cash flows from the funding agreement. The transaction has the following characteristics:
- The funding agreement is an insurance product and the direct liability of the insurance company. Payments on the funding agreement are backed by the general account of the insurance company.
- The terms of the notes exactly match the terms of the underlying funding agreement. There are no other credit enhancements for the notes, and only a nominal residual interest in the special purpose vehicle is created for purposes of complying with formation requirements of local law.
- Only one series of notes is created with the backing of a particular funding agreement. While the special purpose vehicle may issue multiple series of notes, each series will be backed by one distinct funding agreement.
- Amounts paid by the insurance company to the special purpose vehicle under the funding agreement are used solely for making payments due under the notes. Any fees and expenses payable by the special purpose vehicle are reimbursed through a separate agreement with the insurance company.
Would such funding agreement-backed notes be an "asset-backed security" as defined under either Item 1101(c) of Regulation AB or Section 3(a)(79) of the Exchange Act?
Answer:
No. The definition of "asset-backed security" under Item 1101(c) of Regulation AB requires, in relevant part, that a security meeting the definition be serviced by the cash flows of a discrete pool of receivables or other financial assets. Similarly, the definition of "asset-backed security" under Section 3(a)(79) of the Exchange Act requires, in relevant part, that a security meeting that definition be collateralized by a self-liquidating financial asset.
Under these facts, we would not consider the funding agreement to be a separate financial asset servicing payments on the notes. Rather, an assessment of the cash flows servicing the payments on the notes requires looking through the funding agreement to the general account of the insurance company for the following reasons:
- The structure of the funding agreement-backed notes is meant to replicate payments made by the insurance company under the funding agreement;
- The funding agreement is a direct liability of the insurance company; and
- Payments on the funding agreement-backed notes are based solely on the ability of the insurance company to make payments on the funding agreement.
Therefore, we would not consider the funding agreement-backed notes to be asset-backed securities under either Item 1101(c) of Regulation AB or Section 3(a)(79) of the Exchange Act. [09/06/16]
This is a work of the U.S. Government
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