MUFG Union Bank, N.A.; Notice of Application, 71143-71145 [2014-28174]
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Lakes populations and resources
(including fisheries, aquaculture, and
marine ecosystems).
• Space Weather: Understanding,
assessing, predicting, and mitigating the
effects of space weather on
technological systems (including
satellites, power grids, communications,
and navigation).
• Transportation: Improving the
safety and efficiency of all modes of
transportation (including air, highway,
railway, and marine).
• Water Resources: Improving water
resource management through better
understanding and monitoring of the
water cycle.
• Weather: Improving weather
information, forecasting, and warning.
• Reference Measurements:
Improving reference measurements—the
underpinnings of all the SBAs—and the
fundamental measurement systems and
standards supporting them (such as
geodesy, bathymetry, topography, and
geolocation).
OSTP invites you to submit public
comments (limit 5 pages) on the
technical feasibility of developing
microsatellites that can be deployed at
equal or lower cost compared to current
satellites to meet the sustained missions
of the civil Earth observation
community. For the purposes of this
study, OSTP considers microsatellites as
having a mass of less than 100 kg. In
your written response, please identify
the number of each topic as you address
it.
OSTP welcomes public input on the
following topics:
1. Identify the measurement
categories highlighted in the National
Plan for Civil Earth Observations
relevant to your mission;
2. Technical near-term (1–5 years)
capabilities of microsatellite system(s)
related to Earth observations capabilities
as defined above;
3. Reliability, system lifetime, and
maintainability;
4. Launch requirements including
planned launch options (rideshare,
microsatellite launch companies, etc.), if
they exist;
5. Current technical limitations on
microsatellites for operational Earth
observing missions; and
6. Broad estimates of development,
launch and operational costs of specific
systems.
Ted Wackler,
Deputy Chief of Staff and Assistant Director.
[FR Doc. 2014–28178 Filed 11–28–14; 8:45 am]
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SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
31347; File No. 812–14331]
MUFG Union Bank, N.A.; Notice of
Application
November 24, 2014.
71143
The
following is a summary of the
application. The complete application
may be obtained via the Commission’s
Web site by searching for the file
number, or for an applicant using the
Company name box, at https://
www.sec.gov/search/search.htm or by
calling (202) 551–8090.
SUPPLEMENTARY INFORMATION:
Applicant’s Representations
1. The applicant is a wholly-owned
indirect subsidiary of Mitsubishi UFJ
Financial Group, Inc. (MUFG).1 MUFG
is a global financial services
organization that offers a broad range of
banking, trust, and securities services to
individuals and entities around the
SUMMARY: Summary of Application:
world. The applicant is frequently
Applicant requests an order that would
selected to act as trustee in connection
permit an issuer of asset-backed
with ABS issued by Issuers.
2. An ABS transaction typically
securities (‘‘ABS’’) that is not registered
involves the transfer of assets by a
as an investment company under the
seller, usually by a ‘‘sponsor,’’ to a
Act in reliance on Rule 3a–7 under the
bankruptcy remote special purpose
Act (an ‘‘Issuer’’) to appoint the
corporate or trust entity that is
applicant as a trustee in connection
established for the sole purpose of
with the Issuer’s ABS when the
holding the assets and issuing ABS to
applicant is affiliated with an
investors (an ‘‘ABS Transaction’’).
underwriter for the Issuer’s ABS.
Payments of interest and principle on
Applicant: MUFG Union Bank, N.A.
DATES: Filing Dates: The application was the ABS depend primarily on the cash
flow generated by the pool of assets
filed on July 11, 2014 and amended on
owned by the Issuer.
October 3, 2014 and October 10, 2014.
3. The parties to an ABS Transaction
Hearing or Notification of Hearing: An
enter into several transaction
order granting the application will be
agreements that provide for the holding
issued unless the Commission orders a
hearing. Interested persons may request of the assets by the Issuer and define the
rights and responsibilities of the parties
a hearing by writing to the
to the transaction (‘‘Transaction
Commission’s Secretary and serving
Documents’’). The operative Transaction
applicant with a copy of the request,
Document governing the trustee is
personally or by mail. Hearing requests
referred to herein as the ‘‘Agreement.’’
should be received by the Commission
4. The sponsor of an ABS Transaction
by 5:30 p.m. on December 19, 2014 and
assembles the pool of assets by
should be accompanied by proof of
purchasing or funding them, describes
service on the applicant, in the form of
them in the offering materials, and
an affidavit or, for lawyers, a certificate
retains the underwriter to sell interests
of service. Pursuant to Rule 0–5 under
in the assets to investors. The sponsor
the Act, hearing requests should state
determines the structure, drafts the
the nature of the writer’s interest, any
documents, and prices the ABS
facts bearing upon the desirability of a
Transaction. The sponsor selects the
hearing on the matter, the reason for the
other parties to the ABS Transaction,
request, and the issues contested.
including the underwriter, the servicer,
Persons who wish to be notified of a
and the trustee.
hearing may request notification by
5. The servicer, either directly or
writing to the Commission’s Secretary.
through subservicers, manages the
ADDRESSES: The Commission: Brent J.
assets held by the Issuer. The servicer
Fields, Secretary, U.S. Securities and
typically collects the income from the
Exchange Commission, 100 F Street NE., assets and remits the income to the
Washington, DC 20549–1090.
Applicant: MUFG Union Bank, N.A.,
1 The applicant also requests that the order apply
to an Issuer’s future appointment of any other entity
445 S. Figueroa Street, Suite 1203, Los
controlling, controlled by, or under common
Angeles, CA 90071.
control (as defined in Section 2(a)(9) of the Act)
FOR FURTHER INFORMATION CONTACT:
with the applicant as a trustee in connection with
an Issuer’s ABS. The applicant represents that any
Rochelle Kauffman Plesset, Senior
other entity intending to rely on this relief will
Counsel, at (202) 551–6840, or Nadya
comply with the terms and conditions of the
Roytblat, Assistant Chief Counsel at
application. Any existing entity currently intending
(202) 551–0825 (Division of Investment
to rely on the requested order has been named as
an applicant.
Management, Chief Counsel’s Office).
Securities and Exchange
Commission (‘‘Commission’’).
ACTION: Notice of an application under
Section 6(c) of the Investment Company
Act of 1940 (‘‘Act’’) for an exemption
from certain requirements of Rule 3a–
7(a)(4)(i) under the Act.
AGENCY:
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trustee. The trustee uses the income, as
instructed by the servicer and as
provided by the Agreement, to pay
interest and principal on the ABS, to
fund reserve accounts and purchases of
additional assets, and to make other
payments including fees owed to the
trustee and other parties to the ABS
Transaction.
6. The sponsor of an ABS Transaction
selects the trustee and other participants
in the transaction. In selecting a trustee,
the sponsor generally seeks to obtain
customary trust administrative and
related services for the Issuer at minimal
cost. In some instances, other parties to
an ABS Transaction may provide
recommendations to a sponsor about
potential trustees. An underwriter for an
ABS Transaction also may provide
advice to the sponsor about trustee
selection based on the underwriter’s
knowledge of the pricing and expertise
offered by a particular trustee in light of
the contemplated transaction.
7. If an underwriter affiliated with the
applicant recommends a trustee to a
sponsor, both the underwriter’s
recommendation and any selection of
the applicant by the sponsor will be
based upon customary market
considerations of pricing and expertise,
among other things, and the selection
will result from an arms-length
negotiation between the sponsor and the
applicant. The applicant will not price
its services as trustee in a manner
designed to facilitate its affiliate being
named underwriter.
8. The trustee’s role in an ABS
Transaction is specifically defined by
the Agreement, and under the
Agreement the trustee is not expected or
required to perform discretionary
functions. The responsibilities of the
trustee as set forth in the Agreement are
narrowly circumscribed and limited to
those expressly accepted by the trustee.
The trustee negotiates the provisions
applicable to it directly with the
sponsor and is then appointed by, and
enters into the Agreement with, the
Issuer.
9. The trustee usually becomes
involved in an ABS Transaction after
the substantive economic terms have
been negotiated between the sponsor
and the underwriters. The trustee does
not monitor any service performed by,
or obligation of, an underwriter,
whether or not the underwriter is
affiliated with the trustee. In the
unlikely event that the applicant, in
acting as trustee to an Issuer for which
an affiliate acts as underwriter, becomes
obligated to enforce any of the affiliated
underwriter’s obligations to the Issuer,
the applicant will resign as trustee for
the Issuer consistent with the
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requirements of Rule 3a–7(a)(4)(i). In
such an event, the applicant will incur
the costs associated with the Issuer’s
procurement of a successor trustee.
10. The sponsor selects one or more
underwriters to purchase the Issuer’s
ABS and resell them or to privately
place them with buyers obtained by the
underwriter. The sponsor enters into an
underwriting agreement with the
underwriter that sets forth the
responsibilities of the underwriter with
respect to the distribution of the ABS
and includes representations and
warranties regarding, among other
things, the underwriter and the quality
of the Issuer’s assets. The obligations of
the underwriter under the underwriting
agreement are enforceable against the
underwriter only by the sponsor.
11. The underwriter may assist the
sponsor in the organization of an Issuer
by providing advice, based on its
expertise in ABS Transactions, on the
structuring and marketing of the ABS.
This advice may relate to the risk
tolerance of investors, the type of
collateral, the predictability of the
payment stream, the process by which
payments are allocated and downstreamed to investors, the way that
credit losses may affect the trust and the
return to investors, whether the
collateral represents a fixed set of
specific assets or accounts, and the use
of forms of credit enhancements to
transform the risk-return profile of the
underlying collateral. Any involvement
of an underwriter in the organization of
an Issuer that occurs is limited to
helping determine the assets to be
pooled, helping establish the terms of
the ABS to be underwritten, and
providing the sponsor with a warehouse
line of credit with which to purchase
the pool assets.
12. An underwriter may provide
advice to a sponsor regarding the
sponsor’s selection of a trustee for the
Issuer. However, an underwriter’s role
in structuring a transaction would not
extend to determining the obligations of
a trustee, and the underwriter is not a
party to the Agreement or to any of the
Transaction Documents. Except for
arrangements involving credit or credit
enhancement for an Issuer or
remarketing agent activities, the
underwriter typically has no role in the
operation of the Issuer after its issuance
of securities. The applicant represents
that although an underwriter typically
may provide credit or credit
enhancement for an Issuer or engage in
remarketing agent activities, an
underwriter affiliated with the applicant
will not provide or engage in such
activities.
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Applicant’s Legal Analysis
1. Rule 3a–7 excludes from the
definition of investment company under
Section 3(a) of the Act an Issuer that
meets the conditions of the rule. One of
Rule 3a–7’s conditions, set forth in
paragraph (a)(4)(i), requires that the
Issuer appoint a trustee that is not
affiliated with the Issuer or with any
person involved in the organization or
operation of the Issuer (the
‘‘Independent Trustee Requirement’’).
Rule 3a–7(a)(4)(i) therefore prohibits an
Issuer from appointing a trustee that is
affiliated with an underwriter.
2. Section 6(c) of the Act provides that
the Commission may exempt any
person, security or transaction or any
class or classes of persons, securities or
transactions from any provision of the
Act, or from any rule thereunder, if and
to the extent such exemption is
necessary or appropriate in the public
interest and consistent with the
protection of investors and the purposes
fairly intended by the policy and
provisions of the Act.
3. Applicant requests exemptive relief
under Section 6(c) of the Act from Rule
3a–7(a)(4)(i) under the Act to the extent
necessary to permit an Issuer to appoint
the applicant as a trustee to the Issuer
when the applicant is affiliated with an
underwriter involved in the
organization of the Issuer. Applicant
submits that the requested exemptive
relief from the Independent Trustee
Requirement is necessary and
appropriate in the public interest and is
consistent with the protection of
investors and the purposes fairly
intended by the policy and provisions of
the Act due to changes in the banking
industry, due to the timing and nature
of the roles of the trustee and the
underwriter in ABS Transactions, and
because the requested relief is
consistent with the policies and
purposes underlying the Independent
Trustee Requirement and Rule 3a–7 in
general.
4. Applicant states that when Rule
3a–7 was proposed in 1992, virtually all
trustees were unaffiliated with the other
parties involved in an ABS Transaction.
Applicant states that consolidation
within the banking industry, as well as
economic and other business factors,
has resulted in a significant decrease in
the number of bank trustees providing
services to Issuers. Applicant also states
that bank consolidation has been
accompanied by the expansion of banks
into investment banking, including the
underwriting of ABS Transactions.
Applicant further states that due to
these banking industry changes, most
trustees that provide services to Issuers,
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including the applicant, have
affiliations with underwriters to Issuers.
Applicant states that, as a result, when
an affiliate of the applicant is selected
to underwrite ABS in an ABS
Transaction, Rule 3a–7(a)(4)(i)’s
Independent Trustee Requirement
generally prevents applicant from
serving as trustee for the Issuer.
Applicant states that the Independent
Trustee Requirement imposes an
unnecessary regulatory limitation on
trustee selection and causes market
distortions by leading to the selection of
trustees for reasons other than
customary market considerations of
pricing and expertise. This result is
disadvantageous to the ABS market and
to ABS investors.
5. Applicant submits that due to the
nature and timing of the roles of the
trustee and the underwriter, applicant’s
affiliation with an underwriter would
not result in a conflict of interest or
possibility of overreaching that could
harm investors. Applicant states that the
trustee’s role begins with the Issuer’s
issuance of its securities, and the trustee
performs its role over the life of the
Issuer. Applicant states that, in contrast,
the underwriter is chosen early in the
ABS Transaction process, may help to
structure the ABS Transaction,
distributes the Issuer’s securities to
investors, and generally has no role
subsequent to the distribution of the
Issuer’s securities. Applicant further
states that an ABS trustee does not
monitor the distribution of securities or
any other activity performed by
underwriters and there is no
opportunity for a trustee and an
affiliated underwriter to act in concert
to benefit themselves at the expense of
holders of the ABS either prior to or
after the closing of the ABS Transaction.
6. Applicant states that the trustee’s
role is narrowly defined, and that the
trustee is neither expected nor required
to exercise discretion or judgment
except after a default in the ABS
transaction, which rarely occurs.
Applicant states that the duties of a
trustee after a default are limited to
enforcing the terms of the Agreement for
the benefit of debt holders as a ‘‘prudent
person’’ would enforce such interests
for his own benefit. Applicant further
states that the trustee of the Issuer has
virtually no discretion to pursue anyone
in any regard other than preserving and
realizing on the assets. In any event,
Applicant states that any role taken by
the Trustee in the event of a default
would occur after the underwriter has
terminated its role in the transaction.
7. Applicant submits that the
concerns underlying the Independent
Trustee Requirement are not implicated
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if the trustee for an Issuer is
independent of the sponsor, servicer,
and credit enhancer for the Issuer, but
is affiliated with an underwriter for the
Issuer, because in that situation no
single entity would act in all capacities
in the issuance of the ABS and the
operation of an Issuer. Applicant states
that applicant would continue to act as
an independent party safeguarding the
assets of any Issuer regardless of an
affiliation with an underwriter of the
ABS. Applicant submits that the
concern that affiliation could lead to a
trustee monitoring the activities of an
affiliate also is not implicated by a
trustee’s affiliation with an underwriter,
because, in practice, a trustee for an
Issuer does not monitor the distribution
of securities or any other activity
performed by underwriters. Applicant
further states that the requested relief
would be consistent with the broader
purpose of Rule 3a–7 of not hampering
the growth and development of the ABS
market, to the extent consistent with
investor protection.
8. Applicant states that the conditions
set forth below provide additional
protections against conflicts and
overreaching. For example, the
conditions ensure that the Applicant
will continue to act as an independent
party safeguarding the assets of an
Issuer regardless of an affiliation with
the underwriter of the ABS and would
not allow the underwriter any greater
access to the assets, or cash flows
derived from the assets, of the Issuer
than if there were no affiliation.
Applicant’s Conditions
The applicant agrees that any order
granting the requested relief will be
subject to the following conditions:
1. The applicant will not be affiliated
with any person involved in the
organization or operation of the Issuer
in an ABS Transaction other than the
underwriter.
2. The applicant’s relationship to an
affiliated underwriter will be disclosed
in writing to all parties involved in an
ABS Transaction, including the rating
agencies and the ABS holders.
3. An underwriter affiliated with the
applicant will not be involved in the
operation of an Issuer, and its
involvement in the organization of an
Issuer will extend only to determining
the assets to be pooled, assisting in
establishing the terms of the ABS to be
underwritten, and providing the
sponsor with a warehouse line of credit
with which to purchase the pool assets.
4. An affiliated person of the
applicant, including an affiliated
underwriter, will not provide credit or
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71145
credit enhancement to an Issuer if the
applicant serves as trustee to the Issuer.
5. An underwriter affiliated with the
applicant will not engage in any
remarketing agent activities, including
involvement in any auction process in
which ABS interest rates, yields, or
dividends are reset at designated
intervals in any ABS Transaction from
which the applicant serves as trustee to
the Issuer.
6. All of an affiliated underwriter’s
contractual obligations pursuant to the
underwriting agreement will be
enforceable by the sponsor.
7. Consistent with the requirements of
Rule 3a–7(a)(4)(i), the applicant will
resign as trustee for the Issuer if
applicant becomes obligated to enforce
any of an affiliated underwriter’s
obligations to the Issuer.
8. The applicant will not price its
services as trustee in a manner designed
to facilitate its affiliate being named
underwriter.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–28174 Filed 11–28–14; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. IC–31344]
Notice of Applications for
Deregistration Under Section 8(f) of the
Investment Company Act of 1940
November 21, 2014.
The following is a notice of
applications for deregistration under
section 8(f) of the Investment Company
Act of 1940 for the month of November
2014. A copy of each application may be
obtained via the Commission’s Web site
by searching for the file number, or for
an applicant using the Company name
box, at https://www.sec.gov/search/
search.htm or by calling (202) 551–
8090. An order granting each
application will be issued unless the
SEC orders a hearing. Interested persons
may request a hearing on any
application by writing to the SEC’s
Secretary at the address below and
serving the relevant applicant with a
copy of the request, personally or by
mail. Hearing requests should be
received by the SEC by 5:30 p.m. on
December 19, 2014, and should be
accompanied by proof of service on
applicants, in the form of an affidavit or,
for lawyers, a certificate of service.
Pursuant to Rule 0–5 under the Act,
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Agencies
[Federal Register Volume 79, Number 230 (Monday, December 1, 2014)]
[Notices]
[Pages 71143-71145]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-28174]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 31347; File No. 812-14331]
MUFG Union Bank, N.A.; Notice of Application
November 24, 2014.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application under Section 6(c) of the Investment
Company Act of 1940 (``Act'') for an exemption from certain
requirements of Rule 3a-7(a)(4)(i) under the Act.
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SUMMARY: Summary of Application: Applicant requests an order that would
permit an issuer of asset-backed securities (``ABS'') that is not
registered as an investment company under the Act in reliance on Rule
3a-7 under the Act (an ``Issuer'') to appoint the applicant as a
trustee in connection with the Issuer's ABS when the applicant is
affiliated with an underwriter for the Issuer's ABS.
Applicant: MUFG Union Bank, N.A.
DATES: Filing Dates: The application was filed on July 11, 2014 and
amended on October 3, 2014 and October 10, 2014.
Hearing or Notification of Hearing: An order granting the
application will be issued unless the Commission orders a hearing.
Interested persons may request a hearing by writing to the Commission's
Secretary and serving applicant with a copy of the request, personally
or by mail. Hearing requests should be received by the Commission by
5:30 p.m. on December 19, 2014 and should be accompanied by proof of
service on the applicant, in the form of an affidavit or, for lawyers,
a certificate of service. Pursuant to Rule 0-5 under the Act, hearing
requests should state the nature of the writer's interest, any facts
bearing upon the desirability of a hearing on the matter, the reason
for the request, and the issues contested. Persons who wish to be
notified of a hearing may request notification by writing to the
Commission's Secretary.
ADDRESSES: The Commission: Brent J. Fields, Secretary, U.S. Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
Applicant: MUFG Union Bank, N.A., 445 S. Figueroa Street, Suite 1203,
Los Angeles, CA 90071.
FOR FURTHER INFORMATION CONTACT: Rochelle Kauffman Plesset, Senior
Counsel, at (202) 551-6840, or Nadya Roytblat, Assistant Chief Counsel
at (202) 551-0825 (Division of Investment Management, Chief Counsel's
Office).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's Web site by searching for the file number, or for an
applicant using the Company name box, at https://www.sec.gov/search/search.htm or by calling (202) 551-8090.
Applicant's Representations
1. The applicant is a wholly-owned indirect subsidiary of
Mitsubishi UFJ Financial Group, Inc. (MUFG).\1\ MUFG is a global
financial services organization that offers a broad range of banking,
trust, and securities services to individuals and entities around the
world. The applicant is frequently selected to act as trustee in
connection with ABS issued by Issuers.
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\1\ The applicant also requests that the order apply to an
Issuer's future appointment of any other entity controlling,
controlled by, or under common control (as defined in Section
2(a)(9) of the Act) with the applicant as a trustee in connection
with an Issuer's ABS. The applicant represents that any other entity
intending to rely on this relief will comply with the terms and
conditions of the application. Any existing entity currently
intending to rely on the requested order has been named as an
applicant.
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2. An ABS transaction typically involves the transfer of assets by
a seller, usually by a ``sponsor,'' to a bankruptcy remote special
purpose corporate or trust entity that is established for the sole
purpose of holding the assets and issuing ABS to investors (an ``ABS
Transaction''). Payments of interest and principle on the ABS depend
primarily on the cash flow generated by the pool of assets owned by the
Issuer.
3. The parties to an ABS Transaction enter into several transaction
agreements that provide for the holding of the assets by the Issuer and
define the rights and responsibilities of the parties to the
transaction (``Transaction Documents''). The operative Transaction
Document governing the trustee is referred to herein as the
``Agreement.''
4. The sponsor of an ABS Transaction assembles the pool of assets
by purchasing or funding them, describes them in the offering
materials, and retains the underwriter to sell interests in the assets
to investors. The sponsor determines the structure, drafts the
documents, and prices the ABS Transaction. The sponsor selects the
other parties to the ABS Transaction, including the underwriter, the
servicer, and the trustee.
5. The servicer, either directly or through subservicers, manages
the assets held by the Issuer. The servicer typically collects the
income from the assets and remits the income to the
[[Page 71144]]
trustee. The trustee uses the income, as instructed by the servicer and
as provided by the Agreement, to pay interest and principal on the ABS,
to fund reserve accounts and purchases of additional assets, and to
make other payments including fees owed to the trustee and other
parties to the ABS Transaction.
6. The sponsor of an ABS Transaction selects the trustee and other
participants in the transaction. In selecting a trustee, the sponsor
generally seeks to obtain customary trust administrative and related
services for the Issuer at minimal cost. In some instances, other
parties to an ABS Transaction may provide recommendations to a sponsor
about potential trustees. An underwriter for an ABS Transaction also
may provide advice to the sponsor about trustee selection based on the
underwriter's knowledge of the pricing and expertise offered by a
particular trustee in light of the contemplated transaction.
7. If an underwriter affiliated with the applicant recommends a
trustee to a sponsor, both the underwriter's recommendation and any
selection of the applicant by the sponsor will be based upon customary
market considerations of pricing and expertise, among other things, and
the selection will result from an arms-length negotiation between the
sponsor and the applicant. The applicant will not price its services as
trustee in a manner designed to facilitate its affiliate being named
underwriter.
8. The trustee's role in an ABS Transaction is specifically defined
by the Agreement, and under the Agreement the trustee is not expected
or required to perform discretionary functions. The responsibilities of
the trustee as set forth in the Agreement are narrowly circumscribed
and limited to those expressly accepted by the trustee. The trustee
negotiates the provisions applicable to it directly with the sponsor
and is then appointed by, and enters into the Agreement with, the
Issuer.
9. The trustee usually becomes involved in an ABS Transaction after
the substantive economic terms have been negotiated between the sponsor
and the underwriters. The trustee does not monitor any service
performed by, or obligation of, an underwriter, whether or not the
underwriter is affiliated with the trustee. In the unlikely event that
the applicant, in acting as trustee to an Issuer for which an affiliate
acts as underwriter, becomes obligated to enforce any of the affiliated
underwriter's obligations to the Issuer, the applicant will resign as
trustee for the Issuer consistent with the requirements of Rule 3a-
7(a)(4)(i). In such an event, the applicant will incur the costs
associated with the Issuer's procurement of a successor trustee.
10. The sponsor selects one or more underwriters to purchase the
Issuer's ABS and resell them or to privately place them with buyers
obtained by the underwriter. The sponsor enters into an underwriting
agreement with the underwriter that sets forth the responsibilities of
the underwriter with respect to the distribution of the ABS and
includes representations and warranties regarding, among other things,
the underwriter and the quality of the Issuer's assets. The obligations
of the underwriter under the underwriting agreement are enforceable
against the underwriter only by the sponsor.
11. The underwriter may assist the sponsor in the organization of
an Issuer by providing advice, based on its expertise in ABS
Transactions, on the structuring and marketing of the ABS. This advice
may relate to the risk tolerance of investors, the type of collateral,
the predictability of the payment stream, the process by which payments
are allocated and down-streamed to investors, the way that credit
losses may affect the trust and the return to investors, whether the
collateral represents a fixed set of specific assets or accounts, and
the use of forms of credit enhancements to transform the risk-return
profile of the underlying collateral. Any involvement of an underwriter
in the organization of an Issuer that occurs is limited to helping
determine the assets to be pooled, helping establish the terms of the
ABS to be underwritten, and providing the sponsor with a warehouse line
of credit with which to purchase the pool assets.
12. An underwriter may provide advice to a sponsor regarding the
sponsor's selection of a trustee for the Issuer. However, an
underwriter's role in structuring a transaction would not extend to
determining the obligations of a trustee, and the underwriter is not a
party to the Agreement or to any of the Transaction Documents. Except
for arrangements involving credit or credit enhancement for an Issuer
or remarketing agent activities, the underwriter typically has no role
in the operation of the Issuer after its issuance of securities. The
applicant represents that although an underwriter typically may provide
credit or credit enhancement for an Issuer or engage in remarketing
agent activities, an underwriter affiliated with the applicant will not
provide or engage in such activities.
Applicant's Legal Analysis
1. Rule 3a-7 excludes from the definition of investment company
under Section 3(a) of the Act an Issuer that meets the conditions of
the rule. One of Rule 3a-7's conditions, set forth in paragraph
(a)(4)(i), requires that the Issuer appoint a trustee that is not
affiliated with the Issuer or with any person involved in the
organization or operation of the Issuer (the ``Independent Trustee
Requirement''). Rule 3a-7(a)(4)(i) therefore prohibits an Issuer from
appointing a trustee that is affiliated with an underwriter.
2. Section 6(c) of the Act provides that the Commission may exempt
any person, security or transaction or any class or classes of persons,
securities or transactions from any provision of the Act, or from any
rule thereunder, if and to the extent such exemption is necessary or
appropriate in the public interest and consistent with the protection
of investors and the purposes fairly intended by the policy and
provisions of the Act.
3. Applicant requests exemptive relief under Section 6(c) of the
Act from Rule 3a-7(a)(4)(i) under the Act to the extent necessary to
permit an Issuer to appoint the applicant as a trustee to the Issuer
when the applicant is affiliated with an underwriter involved in the
organization of the Issuer. Applicant submits that the requested
exemptive relief from the Independent Trustee Requirement is necessary
and appropriate in the public interest and is consistent with the
protection of investors and the purposes fairly intended by the policy
and provisions of the Act due to changes in the banking industry, due
to the timing and nature of the roles of the trustee and the
underwriter in ABS Transactions, and because the requested relief is
consistent with the policies and purposes underlying the Independent
Trustee Requirement and Rule 3a-7 in general.
4. Applicant states that when Rule 3a-7 was proposed in 1992,
virtually all trustees were unaffiliated with the other parties
involved in an ABS Transaction. Applicant states that consolidation
within the banking industry, as well as economic and other business
factors, has resulted in a significant decrease in the number of bank
trustees providing services to Issuers. Applicant also states that bank
consolidation has been accompanied by the expansion of banks into
investment banking, including the underwriting of ABS Transactions.
Applicant further states that due to these banking industry changes,
most trustees that provide services to Issuers,
[[Page 71145]]
including the applicant, have affiliations with underwriters to
Issuers. Applicant states that, as a result, when an affiliate of the
applicant is selected to underwrite ABS in an ABS Transaction, Rule 3a-
7(a)(4)(i)'s Independent Trustee Requirement generally prevents
applicant from serving as trustee for the Issuer. Applicant states that
the Independent Trustee Requirement imposes an unnecessary regulatory
limitation on trustee selection and causes market distortions by
leading to the selection of trustees for reasons other than customary
market considerations of pricing and expertise. This result is
disadvantageous to the ABS market and to ABS investors.
5. Applicant submits that due to the nature and timing of the roles
of the trustee and the underwriter, applicant's affiliation with an
underwriter would not result in a conflict of interest or possibility
of overreaching that could harm investors. Applicant states that the
trustee's role begins with the Issuer's issuance of its securities, and
the trustee performs its role over the life of the Issuer. Applicant
states that, in contrast, the underwriter is chosen early in the ABS
Transaction process, may help to structure the ABS Transaction,
distributes the Issuer's securities to investors, and generally has no
role subsequent to the distribution of the Issuer's securities.
Applicant further states that an ABS trustee does not monitor the
distribution of securities or any other activity performed by
underwriters and there is no opportunity for a trustee and an
affiliated underwriter to act in concert to benefit themselves at the
expense of holders of the ABS either prior to or after the closing of
the ABS Transaction.
6. Applicant states that the trustee's role is narrowly defined,
and that the trustee is neither expected nor required to exercise
discretion or judgment except after a default in the ABS transaction,
which rarely occurs. Applicant states that the duties of a trustee
after a default are limited to enforcing the terms of the Agreement for
the benefit of debt holders as a ``prudent person'' would enforce such
interests for his own benefit. Applicant further states that the
trustee of the Issuer has virtually no discretion to pursue anyone in
any regard other than preserving and realizing on the assets. In any
event, Applicant states that any role taken by the Trustee in the event
of a default would occur after the underwriter has terminated its role
in the transaction.
7. Applicant submits that the concerns underlying the Independent
Trustee Requirement are not implicated if the trustee for an Issuer is
independent of the sponsor, servicer, and credit enhancer for the
Issuer, but is affiliated with an underwriter for the Issuer, because
in that situation no single entity would act in all capacities in the
issuance of the ABS and the operation of an Issuer. Applicant states
that applicant would continue to act as an independent party
safeguarding the assets of any Issuer regardless of an affiliation with
an underwriter of the ABS. Applicant submits that the concern that
affiliation could lead to a trustee monitoring the activities of an
affiliate also is not implicated by a trustee's affiliation with an
underwriter, because, in practice, a trustee for an Issuer does not
monitor the distribution of securities or any other activity performed
by underwriters. Applicant further states that the requested relief
would be consistent with the broader purpose of Rule 3a-7 of not
hampering the growth and development of the ABS market, to the extent
consistent with investor protection.
8. Applicant states that the conditions set forth below provide
additional protections against conflicts and overreaching. For example,
the conditions ensure that the Applicant will continue to act as an
independent party safeguarding the assets of an Issuer regardless of an
affiliation with the underwriter of the ABS and would not allow the
underwriter any greater access to the assets, or cash flows derived
from the assets, of the Issuer than if there were no affiliation.
Applicant's Conditions
The applicant agrees that any order granting the requested relief
will be subject to the following conditions:
1. The applicant will not be affiliated with any person involved in
the organization or operation of the Issuer in an ABS Transaction other
than the underwriter.
2. The applicant's relationship to an affiliated underwriter will
be disclosed in writing to all parties involved in an ABS Transaction,
including the rating agencies and the ABS holders.
3. An underwriter affiliated with the applicant will not be
involved in the operation of an Issuer, and its involvement in the
organization of an Issuer will extend only to determining the assets to
be pooled, assisting in establishing the terms of the ABS to be
underwritten, and providing the sponsor with a warehouse line of credit
with which to purchase the pool assets.
4. An affiliated person of the applicant, including an affiliated
underwriter, will not provide credit or credit enhancement to an Issuer
if the applicant serves as trustee to the Issuer.
5. An underwriter affiliated with the applicant will not engage in
any remarketing agent activities, including involvement in any auction
process in which ABS interest rates, yields, or dividends are reset at
designated intervals in any ABS Transaction from which the applicant
serves as trustee to the Issuer.
6. All of an affiliated underwriter's contractual obligations
pursuant to the underwriting agreement will be enforceable by the
sponsor.
7. Consistent with the requirements of Rule 3a-7(a)(4)(i), the
applicant will resign as trustee for the Issuer if applicant becomes
obligated to enforce any of an affiliated underwriter's obligations to
the Issuer.
8. The applicant will not price its services as trustee in a manner
designed to facilitate its affiliate being named underwriter.
For the Commission, by the Division of Investment Management,
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-28174 Filed 11-28-14; 8:45 am]
BILLING CODE 8011-01-P