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Regulation AB

Regulation AB. Overview. Regulation AB: Four Major Areas. Securities Registration Offering Communication Offering Disclosure Ongoing Reporting. Securities Registration. Shelf Registration is critical for ABS market access Slightly expanded definition of Asset-Backed Security, ABS

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Regulation AB

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  1. Regulation AB Overview

  2. Regulation AB:Four Major Areas • Securities Registration • Offering Communication • Offering Disclosure • Ongoing Reporting

  3. Securities Registration • Shelf Registration is critical for ABS market access • Slightly expanded definition of Asset-Backed Security, ABS • New Requirement: must be in compliance with Exchange Act Reporting Requirements

  4. Offering Communication • ABS Informational and Computational Materials • Free Writing Prospectus – Securities Offering Reform • ABS Research and Other Communications

  5. Offering Communication • Securities Act Reform Warning: Your offering liability is in the “Red”

  6. Offering Disclosure • Transaction Parties • Collateral: Static Pool Information (SPI) and Pool Characteristics • Key Third Parties and Instruments

  7. Offering Disclosure: Transaction Parties • Depositor • Issuing Entity • Sponsor • Originator • Servicer • Trustee • Others: Derivative Provider, Significant Obligors

  8. Offering Disclosure:Who is a Sponsor? • The person who organizes and initiates the ABS transaction by selling or transferring assets, either directly or indirectly, including through an affiliate, to the issuing entity

  9. Offering Disclosure:Sponsor • Organizational form and general character of business. • To the extent material, • Experience in securitizing assets of any type • Experience in, and overall procedures for, originating or acquiring and securitizing the asset type being securitized • Size, growth and composition of sponsor’s portfolio of the asset type being securitized • Information that may be material to analysis of origination and performance of the pool assets • Underwriting criteria • Extent of out-sourcing to third parties any origination or purchasing functions • Extent securitization is material funding source of sponsor • Material roles and responsibilities in securitization program (including whether sponsor or affiliate is responsible for selection of pool assets)

  10. Offering Disclosure: Who is a Servicer? • Any person responsible for management or collection of pooled assets or making allocations or distributions to holders of ABS • Title unimportant • Contractual privity not required

  11. Offering Disclosure:Servicer • Disclosure for each of the identified servicers (except for unaffiliated servicer that services less than 20% of the pool) includes • Name and form of organization • Experience in servicing assets of any type • Experience in, and procedures for, servicing mortgage loans • Size, growth and composition of servicer’s portfolio of mortgage loans • Information material to analysis of servicing of mortgage loans • Whether any material non-compliance with servicing criteria occurred in other transactions • Material changes in servicer’s policies and procedures for servicing mortgage loans during the past three years • Information regarding servicer’s financial condition to the extent there is material risk of impact on servicing

  12. Offering Disclosure:Servicer (cont.) • Description of the material terms of the servicing agreements and any limitations on the servicer’s liability and, to the extent material, • the servicer’s collection accounts • any advances made by the servicer and recovery of such advances (including, to the extent material, statistical information regarding advances for the past three years) • the servicer’s process for handling delinquencies • the servicer’s ability to waive/modify mortgage loan terms • Description of the material terms governing removal, resignation and replacement of the servicer

  13. Offering Disclosure:Who is an Originator? • The person who ….. ORIGINATES!

  14. Offering Disclosure:Originator • Disclosure for each originator (or group of affiliated originators) that originated 20% or more of the assets in the pool, if material includes, • form of organization; • size and composition of the originator’s origination program; and • information material to an analysis of the performance of the pool assets, such as the originator’s credit-granting or underwriting criteria.

  15. Offering Disclosure:Collateral • Static Pool Information • SPI tracks the performance of a specific pool of loans or assets over time • Pool Characteristics • average loan size, geographic concentration, credit scores, and other data

  16. Offering Disclosure:Static Pool Information • What is it? • Loss, delinquency, prepayment information by prior securitized pools/vintage year information; asset classes and asset types • Whose information is it? • Sponsor’s, but materiality matters • How do I get if I sell servicing released? • Data collection/indemnification

  17. Offering Disclosure:Static Pool – What is it? Static Pool Disclosures – Amortizing Asset Pools To the extent the sponsor determines that such information is material: • SPI regarding delinquencies, cumulative losses and prepayments drawn from the sponsor’s prior securitized pools for that asset type • If the sponsor has fewer than three years of securitization experience with the asset type, the sponsor must consider providing the data from purchases or originations by year – so-called “vintage year” – in lieu of information of the sponsor’s prior securitized pools • The sponsor must provide five years of data, or, if shorter, the period for which the sponsor has been securitizing, originating, or purchasing assets of the same type • The data must be presented in monthly or quarterly increments, with the most recent increment of data as of a date no later than 135 days after the date of first use of the prospectus • Summary information regarding the original characteristics of the securitized pools (such as those characteristics which are commonly found in the “strat” tables of current prospectus supplements) from which the data is drawn

  18. Offering Disclosure:Static Pool – What is it? Static Pool Disclosures - Revolving Asset Master Trusts The disclosure regime is very difference because the trust assets are a non-static portfolio. Therefore, to the extent the sponsor determines that such information is material: • Data regarding delinquencies, cumulative losses, prepayments, payment rate, yield and credit score of all assets in the master trust • The data should be presented in separate increments based on the date of origination of the pool assets. While the increments may vary based on a materiality assessment, the data should be presented, at a minimum, in 12 month increments through the first five years of the account’s life • For newer master trusts, presentation of data from the sponsor’s prior master trusts or other pools may be provided in lieu of information from the issuing master trust if such information from the issuing master trust is not material

  19. Offering Disclosure:Static Pool • It’s the Sponsors, but it might be a third party’s if material • Third party’s information may not be material if • “Qualified Correspondent” • sponsor re-underwrites loans • sponsor selects loans for securitization such that originator’s SPI is not representative • loans are not a significant enough portion of the pool • loans are generic enough that the specific originator is fungible

  20. Offering Disclosure:Static Pool • Contractual obligation for purchaser to provide data on loan performance back to seller • Indemnification by purchaser or related servicer with respect to accuracy of information • Will the data collection system work?

  21. Offering Disclosure:Static Pool • Litigation • Affiliations and certain relationships • Securities law traps for the unwary

  22. Offering Disclosure:Static Pool • Monthly Reports on Form 10-D • Current Reports on Form 8-K • Annual Reports on Form 10-K

  23. Ongoing Reporting: Form 10-D • Pool distribution and performance • Material changes in composition of pool assets • Material changes in litigation status of certain transaction parties

  24. Ongoing Reporting:Form 8-K • Reportable events include • entry, modification or termination of a material agreement • bankruptcy • change of servicer or trustee • early amoritization or other performance trigger event

  25. Ongoing Reporting:Form 10-K • Statement of Compliance with Servicing Agreement • Assessment and Attestation of Servicing Platform compliance with servicing criteria • Sarbanes-Oxley Certification

  26. Ongoing Reporting:Who is responsible? • Servicing Agreement Compliance • Affiliated servicers and unaffiliated servicers servicing 10% or more of pool assets • Servicing Criteria Compliance • Assessment: persons performing a servicing function • Attestation: independent accountants • Sarbanes-Oxley Certification • Senior officer of servicer/master servicer (if multiple servicers) or depositor

  27. Ongoing Reporting:ServicingAgreement Compliance • Certification by an officer as to compliance with terms of servicing agreement and disclosure of material non-compliance • Certification for each securitization transaction • Certification for entire reporting period not just a point in time

  28. Ongoing Reporting:Servicing Criteria Compliance • Servicing Criteria: general servicing considerations; cash collection and administration; investor remittance and reporting; pool asset administration • Not transaction specific, “platform based”, which assumes that the asserting party will assess compliance with respect to all ABS transactions involving such party that are backed by assets of the type backing the ABS covered by the Form 10-K • Only servicing functions performed in ABS transactions by that “platform” – inapplicable criteria must be disclosed • Cannot modify servicing criteria – may disclose why process is different • Assessment for entire reporting period not just a point in time

  29. Ongoing Reporting:Servicing Criteria Issues • “Platform” Issues • Definition: GSEs and asset type • Platform noncompliance vs. transaction compliance • Who is “participating in the servicing function”? • Interim servicers, subservicers, subcontractors, vendors • Does the de minimus exclusion really matter? • Revenge of the SOX Certification and I can’t attest to that

  30. Regulation AB:Liability for Information • Servicers, originators, trustees, etc. do not have liability under Sections 11 or 12 of the Securities Act for information provided • Contractual obligation to indemnify for errors and omissions in third-party information – contributions rights if indemnification not available

  31. Regulation AB:Liability for Reports • Signing a false certification included in an Exchange Act Report (Form 10-K, etc.) can potentially lead to • private actions under Rule 10b-5 • SEC enforcement action • liability under Sections 11 and 12 of Securities Act if report is incorporated by reference into the registration statement • criminal penalties under Section 32(a) of Exchange Act

  32. Regulation AB:Implementation • Disclosure of Third-Party Information • It’s Contractual • Data Collecting and Reporting • It’s Organizational • ABS Offerings • It’s Integrated

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