EBSA (Formerly PWBA) Federal Register Notice
Notice of Grant of Individual Exemption To Modify Prohibited Transaction Exemption 90-23 (PTE 90-23); Prohibited Transaction Exemption 90-31 (PTE 90-31) and Prohibited Transaction Exemption 90-33 (PTE 90-33) Involving J.P. Morgan Chase & Company [03/28/2002]
[PDF Version]
Volume 67, Number 60, Page 14979-14985
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Prohibited Transaction Exemption 2002-19; Exemption Application Number
D-11041]
Notice of Grant of Individual Exemption To Modify Prohibited
Transaction Exemption 90-23 (PTE 90-23); Prohibited Transaction
Exemption 90-31 (PTE 90-31) and Prohibited Transaction Exemption 90-33
(PTE 90-33) Involving J.P. Morgan Chase & Company and Its Affiliates
(the Applicants) Located in New York, NY
AGENCY: Pension and Welfare Benefits Administration, U.S. Department of
Labor (the Department).
ACTION: Notice of grant of individual exemption to modify PTE 90-23;
PTE 90-31; and PTE 90-33 (collectively, the Exemptions).
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SUMMARY: This document contains a notice of grant of a proposed
individual administrative exemption which amends: PTE 90-23 (55 FR
20545, May 17, 1990), an exemption which was granted to J.P. Morgan
Securities, Inc.; PTE 90-31 (55 FR 23144, June 6, 1990), an exemption
which was granted to Chase Manhattan Bank; and PTE 90-33 (55 FR 23151,
June 6, 1990), an exemption which was granted to Chemical Banking
Corporation.\1\ The Exemptions provide relief for the operation of
certain asset pool investment trusts and the acquisition, holding and
disposition by employee benefit plans (the Plans) of certificates or
debt instruments that are issued by such trusts with respect to which
one of the Applicants is the lead underwriter or a co-managing
underwriter. This amendment permits the trustee of the trust to be an
affiliate of the underwriter. The amendment affects the participants
and beneficiaries of the Plans participating in such transactions and
the fiduciaries with respect to such Plans.
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\1\ The notice of proposed exemption for PTE 90-23 was published
on February 20, 1990 at 55 FR 5906; the notice of proposed exemption
for PTE 90-31 was published on February 21, 1990 at 55 FR 6074; and
the notice of proposed exemption for PTE 90-33 was published on
February 21, 1990 at 55 FR 6082.
FOR FURTHER INFORMATION CONTACT: Mr. Gary H. Lefkowitz, Office of
Exemption Determinations, Pension and Welfare Benefits Administration,
U.S. Department of Labor, telephone (202) 693-8546. (This is not a
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toll-free number.)
SUPPLEMENTARY INFORMATION: On January 18, 2002, notice was published in
the Federal Register (67 FR 2699) of the pendency before the Department
of a proposed exemption to amend the Exemptions. The amendment, as
proposed, would modify the Exemptions, each as subsequently amended by
PTE 97-34 (62 FR 39021, July 21, 1997) and PTE 2000-58 (65 FR 67765,
November 13, 2000) as set forth below:
The first sentence of section II.A.(4) of the Exemptions is
amended to read: ``The trustee is not an Affiliate of any member of
the Restricted Group, other than an Underwriter.''
The only written comment received by the Department on the proposed
amendment was submitted by the Applicants, who requested that the
Department clarify and restate the Exemptions as a single exemption. In
response to that comment, the Department has determined to publish the
final exemption as requested, which includes all of the amendments made
by PTEs 97-34 and 2000-58.
The Department also received an e-mail message regarding the
proposed amendment from an interested person who suggested that the
same amendment be made to other exemptions previously granted by the
Department for transactions involving asset-backed securities relating
to credit card receivables [e.g., PTE 98-13, 63 FR 17020 (April 7,
1998) regarding MBNA America Bank, N.N.; and PTE 98-14, 63 FR 17027
(April 7, 1998) regarding Citibank (South Dakota), N.A., and
Affiliates]. The Department has determined to separately consider a
similar amendment to its prior individual exemptions for credit card
securitizations in a separate proposal at a later date.
Finally, the Department contacted The Bond Market Association
(TBMA) to discuss extending similar relief to all of the prior
individual exemptions granted for mortgage-backed and other asset-
backed securities (commonly known as the ``Underwriter Exemptions'').
In this regard, the Department notes that all of the Underwriter
Exemptions are essentially identical to the original three Underwriter
Exemptions [i.e., PTE 89-88, 54 FR 42582 (October 17, 1989), regarding
Goldman, Sachs & Co., et al.; PTE 89-89, 54 FR 42569 (October 17,
1989), regarding Salomon Brothers, Inc.; and PTE 89-90, 54 FR 42597
(October 17, 1989), regarding First Boston Corp.]. In addition, each of
the Underwriter Exemptions was also subsequently amended by PTEs 97-34
and 2000-58.\2\ In this regard, the Department anticipates a similar
amendment to the remaining Underwriter Exemptions.
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\2\ For a listing of such exemptions, see PTE 2000-58, footnote
1, 65 FR at 67765 (November 13, 2000).
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Exemption
Under section 408(a) of ERISA and section 4975(c)(2) of the Code
and in accordance with the procedures set forth in 29 CFR Part 2570,
subpart B (55 FR 32836, August 10, 1990), the Department amends the
following individual exemption for J.P. Morgan Chase & Company and its
Affiliates and restates the following individual Prohibited Transaction
Exemptions (PTEs) as a single exemption: PTE 90-23 (55 FR 20545, May
17, 1990), an exemption which was granted to J.P. Morgan Securities,
Inc.; PTE 90-31 (55 FR 23144, June 6, 1990), an exemption which was
granted to Chase Manhattan Bank; and PTE 90-33 (55 FR 23151, June 6,
1990), an exemption which was granted to Chemical Banking Corporation.
I. Transactions
A. The restrictions of sections 406(a) and 407(a) of the Act, and
the taxes imposed by sections 4975(a) and (b) of the Code, by reason of
section
[[Page 14980]]
4975(c)(1)(A) through (D) of the Code shall not apply to the following
transactions involving Issuers and Securities evidencing interests
therein:
(1) The direct or indirect sale, exchange or transfer of Securities
in the initial issuance of Securities between the Sponsor or
Underwriter and an employee benefit plan when the Sponsor, Servicer,
Trustee or Insurer of an Issuer, the Underwriter of the Securities
representing an interest in the Issuer, or an Obligor is a party in
interest with respect to such plan;
(2) The direct or indirect acquisition or disposition of Securities
by a plan in the secondary market for such Securities; and
(3) The continued holding of Securities acquired by a plan pursuant
to subsection I.A.(1) or (2).
Notwithstanding the foregoing, section I.A. does not provide an
exemption from the restrictions of sections 406(a)(1)(E), 406(a)(2) and
407 of the Act for the acquisition or holding of a Security on behalf
of an Excluded Plan by any person who has discretionary authority or
renders investment advice with respect to the assets of that Excluded
Plan.\3\
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\3\ Section I.A. provides no relief from sections 406(a)(1)(E),
406(a)(2) and 407 of the Act for any person rendering investment
advice to an Excluded Plan within the meaning of section
3(21)(A)(ii) of the Act, and regulation 29 CFR 2510.3-21(c).
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B. The restrictions of sections 406(b)(1) and 406(b)(2) of the Act
and the taxes imposed by sections 4975(a) and (b) of the Code, by
reason of section 4975(c)(1)(E) of the Code, shall not apply to:
(1) The direct or indirect sale, exchange or transfer of Securities
in the initial issuance of Securities between the Sponsor or
Underwriter and a plan when the person who has discretionary authority
or renders investment advice with respect to the investment of plan
assets in the Securities is (a) an Obligor with respect to 5 percent or
less of the fair market value of obligations or receivables contained
in the Issuer, or (b) an Affiliate of a person described in (a); if:
(i) The plan is not an Excluded Plan;
(ii) Solely in the case of an acquisition of Securities in
connection with the initial issuance of the Securities, at least 50
percent of each class of Securities in which plans have invested is
acquired by persons independent of the members of the Restricted Group
and at least 50 percent of the aggregate interest in the Issuer is
acquired by persons independent of the Restricted Group;
(iii) A plan's investment in each class of Securities does not
exceed 25 percent of all of the Securities of that class outstanding at
the time of the acquisition; and
(iv) Immediately after the acquisition of the Securities, no more
than 25 percent of the assets of a plan with respect to which the
person has discretionary authority or renders investment advice are
invested in Securities representing an interest in an Issuer containing
assets sold or serviced by the same entity.\4\ For purposes of this
paragraph (iv) only, an entity will not be considered to service assets
contained in a Issuer if it is merely a Subservicer of that Issuer;
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\4\ For purposes of this Underwriter Exemption, each plan
participating in a commingled fund (such as a bank collective trust
fund or insurance company pooled separate account) shall be
considered to own the same proportionate undivided interest in each
asset of the commingled fund as its proportionate interest in the
total assets of the commingled fund as calculated on the most recent
preceding valuation date of the fund.
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(2) The direct or indirect acquisition or disposition of Securities
by a plan in the secondary market for such Securities, provided that
the conditions set forth in paragraphs (i), (iii) and (iv) of
subsection I.B.(1) are met; and
(3) The continued holding of Securities acquired by a plan pursuant
to subsection I.B.(1) or (2).
C. The restrictions of sections 406(a), 406(b) and 407(a) of the
Act, and the taxes imposed by section 4975(a) and (b) of the Code by
reason of section 4975(c) of the Code, shall not apply to transactions
in connection with the servicing, management and operation of an
Issuer, including the use of any Eligible Swap transaction; or,
effective January 1, 1999, the defeasance of a mortgage obligation held
as an asset of the Issuer through the substitution of a new mortgage
obligation in a commercial mortgage-backed Designated Transaction,
provided:
(1) Such transactions are carried out in accordance with the terms
of a binding Pooling and Servicing Agreement;
(2) The Pooling and Servicing Agreement is provided to, or
described in all material respects in the prospectus or private
placement memorandum provided to, investing plans before they purchase
Securities issued by the Issuer;\5\ and
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\5\ In the case of a private placement memorandum, such
memorandum must contain substantially the same information that
would be disclosed on a prospectus if the offering of the securities
were made in a registered public offering under the Securities Act
of 1933. In the Department's view, the private placement memorandum
must contain sufficient information to permit plan fiduciaries to
make informed investment decisions. For purposes of this exemption,
references to ``prospectus'' include any related prospectus
supplement thereto, pursuant to which Securities are offered to
investors.
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(3) The defeasance of a mortgage obligation and the substitution of
a new mortgage obligation in a commercial mortgage-backed Designated
Transaction meet the terms and conditions for such defeasance and
substitution as are described in the prospectus or private placement
memorandum for such Securities, which terms and conditions have been
approved by a Rating Agency and does not result in the Securities
receiving a lower credit rating from the Rating Agency than the current
rating of the Securities.
Notwithstanding the foregoing, section I.C. does not provide an
exemption from the restrictions of section 406(b) of the Act or from
the taxes imposed by reason of section 4975(c) of the Code for the
receipt of a fee by a Servicer of the Issuer from a person other than
the Trustee or Sponsor, unless such fee constitutes a Qualified
Administrative Fee.
D. The restrictions of sections 406(a) and 407(a) of the Act, and
the taxes imposed by section 4975(a) and (b) of the Code by reason of
section 4975(c)(1)(A) through (D) of the Code, shall not apply to any
transactions to which those restrictions or taxes would otherwise apply
merely because a person is deemed to be a party in interest or
disqualified person (including a fiduciary) with respect to a plan by
virtue of providing services to the plan (or by virtue of having a
relationship to such service provider described in section 3(14)(F),
(G), (H) or (I) of the Act or section 4975(e)(2)(F), (G), (H) or (I) of
the Code), solely because of the plan's ownership of Securities.
II. General Conditions
A. The relief provided under section I. is available only if the
following conditions are met:
(1) The acquisition of Securities by a plan is on terms (including
the Security price) that are at least as favorable to the plan as they
would be in an arm's-length transaction with an unrelated party;
(2) The rights and interests evidenced by the Securities are not
subordinated to the rights and interests evidenced by other Securities
of the same Issuer, unless the Securities are issued in a Designated
Transaction;
(3) The Securities acquired by the plan have received a rating from
a Rating Agency at the time of such acquisition that is in one of the
three (or in the case of Designated Transactions, four) highest generic
rating categories;
(4) The Trustee is not an Affiliate of any member of the Restricted
Group,
[[Page 14981]]
other than an Underwriter. For purposes of this requirement:
(a) The Trustee shall not be considered to be an Affiliate of a
Servicer solely because the Trustee has succeeded to the rights and
responsibilities of the Servicer pursuant to the terms of a Pooling and
Servicing Agreement providing for such succession upon the occurrence
of one or more events of default by the Servicer; and
(b) Effective for transactions occurring on or after January 1,
1998, subsection II.A.(4) will be deemed satisfied notwithstanding a
Servicer becoming an Affiliate of the Trustee as the result of a merger
or acquisition involving the Trustee, such Servicer and/or their
Affiliates which occurs after the initial issuance of the Securities,
provided that:
(i) such Servicer ceases to be an Affiliate of the Trustee no later
than six months after the later of August 23, 2000 or the date such
Servicer became an Affiliate of the Trustee; and
(ii) such Servicer did not breach any of its obligations under the
Pooling and Servicing Agreement, unless such breach was immaterial and
timely cured in accordance with the terms of such agreement, during the
period from the closing date of such merger or acquisition transaction
through the date the Servicer ceased to be an Affiliate of the Trustee;
(5) The sum of all payments made to and retained by the
Underwriters in connection with the distribution or placement of
Securities represents not more than Reasonable Compensation for
underwriting or placing the Securities; the sum of all payments made to
and retained by the Sponsor pursuant to the assignment of obligations
(or interests therein) to the Issuer represents not more than the fair
market value of such obligations (or interests); and the sum of all
payments made to and retained by the Servicer represents not more than
Reasonable Compensation for the Servicer's services under the Pooling
and Servicing Agreement and reimbursement of the Servicer's reasonable
expenses in connection therewith;
(6) The plan investing in such Securities is an ``accredited
investor'' as defined in Rule 501(a)(1) of Regulation D of the
Securities and Exchange Commission under the Securities Act of 1933;
and
(7) In the event that the obligations used to fund an Issuer have
not all been transferred to the Issuer on the Closing Date, additional
obligations of the types specified in subsection III.B.(1) may be
transferred to the Issuer during the Pre-Funding Period in exchange for
amounts credited to the Pre-Funding Account, provided that:
(a) The Pre-Funding Limit is not exceeded;
(b) All such additional obligations meet the same terms and
conditions for determining the eligibility of the original obligations
used to create the Issuer (as described in the prospectus or private
placement memorandum and/or Pooling and Servicing Agreement for such
Securities), which terms and conditions have been approved by a Rating
Agency. Notwithstanding the foregoing, the terms and conditions for
determining the eligibility of an obligation may be changed if such
changes receive prior approval either by a majority vote of the
outstanding securityholders or by a Rating Agency;
(c) The transfer of such additional obligations to the Issuer
during the Pre-Funding Period does not result in the Securities
receiving a lower credit rating from a Rating Agency upon termination
of the Pre-Funding Period than the rating that was obtained at the time
of the initial issuance of the Securities by the Issuer;
(d) The weighted average annual percentage interest rate (the
average interest rate) for all of the obligations held by the Issuer at
the end of the Pre-Funding Period will not be more than 100 basis
points lower than the average interest rate for the obligations which
were transferred to the Issuer on the Closing Date;
(e) In order to ensure that the characteristics of the receivables
actually acquired during the Pre-Funding Period are substantially
similar to those which were acquired as of the Closing Date, the
characteristics of the additional obligations will either be monitored
by a credit support provider or other insurance provider which is
independent of the Sponsor or an independent accountant retained by the
Sponsor will provide the Sponsor with a letter (with copies provided to
the Rating Agency, the Underwriter and the Trustee) stating whether or
not the characteristics of the additional obligations conform to the
characteristics of such obligations described in the prospectus,
private placement memorandum and/or Pooling and Servicing Agreement. In
preparing such letter, the independent accountant will use the same
type of procedures as were applicable to the obligations which were
transferred as of the Closing Date;
(f) The Pre-Funding Period shall be described in the prospectus or
private placement memorandum provided to investing plans; and
(g) The Trustee of the Trust (or any agent with which the Trustee
contracts to provide Trust services) will be a substantial financial
institution or trust company experienced in trust activities and
familiar with its duties, responsibilities and liabilities as a
fiduciary under the Act. The Trustee, as the legal owner of the
obligations in the Trust or the holder of a security interest in the
obligations held by the Issuer, will enforce all the rights created in
favor of securityholders of the Issuer, including employee benefit
plans subject to the Act;
(8) In order to insure that the assets of the Issuer may not be
reached by creditors of the Sponsor in the event of bankruptcy or other
insolvency of the Sponsor:
(a) The legal documents establishing the Issuer will contain:
(i) Restrictions on the Issuer's ability to borrow money or issue
debt other than in connection with the securitization;
(ii) Restrictions on the Issuer merging with another entity,
reorganizing, liquidating or selling assets (other than in connection
with the securitization);
(iii) Restrictions limiting the authorized activities of the Issuer
to activities relating to the securitization;
(iv) If the Issuer is not a Trust, provisions for the election of
at least one independent director/partner/member whose affirmative
consent is required before a voluntary bankruptcy petition can be filed
by the Issuer; and
(v) If the Issuer is not a Trust, requirements that each
independent director/partner/member must be an individual that does not
have a significant interest in, or other relationships with, the
Sponsor or any of its Affiliates; and
(b) The Pooling and Servicing Agreement and/or other agreements
establishing the contractual relationships between the parties to the
securitization transaction will contain covenants prohibiting all
parties thereto from filing an involuntary bankruptcy petition against
the Issuer or initiating any other form of insolvency proceeding until
after the Securities have been paid; and
(c) Prior to the issuance by the Issuer of any Securities, a legal
opinion is received which states that either:
(i) A ``true sale'' of the assets being transferred to the Issuer
by the Sponsor has occurred and that such transfer is not being made
pursuant to a financing of the assets by the Sponsor; or
(ii) In the event of insolvency or receivership of the Sponsor, the
assets transferred to the Issuer will not be part of the estate of the
Sponsor;
[[Page 14982]]
(9) If a particular class of Securities held by any plan involves a
Ratings Dependent or Non-Ratings Dependent Swap entered into by the
Issuer, then each particular swap transaction relating to such
Securities:
(a) Shall be an Eligible Swap;
(b) Shall be with an Eligible Swap Counterparty;
(c) In the case of a Ratings Dependent Swap, shall provide that if
the credit rating of the counterparty is withdrawn or reduced by any
Rating Agency below a level specified by the Rating Agency, the
Servicer (as agent for the Trustee) shall, within the period specified
under the Pooling and Servicing Agreement:
(i) Obtain a replacement swap agreement with an Eligible Swap
Counterparty which is acceptable to the Rating Agency and the terms of
which are substantially the same as the current swap agreement (at
which time the earlier swap agreement shall terminate); or
(ii) Cause the swap counterparty to establish any collateralization
or other arrangement satisfactory to the Rating Agency such that the
then current rating by the Rating Agency of the particular class of
Securities will not be withdrawn or reduced.
In the event that the Servicer fails to meet its obligations under
this subsection II.A.(9)(c), plan securityholders will be notified in
the immediately following Trustee's periodic report which is provided
to securityholders, and sixty days after the receipt of such report,
the exemptive relief provided under section I.C. will prospectively
cease to be applicable to any class of Securities held by a plan which
involves such Ratings Dependent Swap; provided that in no event will
such plan securityholders be notified any later than the end of the
second month that begins after the date on which such failure occurs.
(d) In the case of a Non-Ratings Dependent Swap, shall provide
that, if the credit rating of the counterparty is withdrawn or reduced
below the lowest level specified in section III.GG., the Servicer (as
agent for the Trustee) shall within a specified period after such
rating withdrawal or reduction:
(i) Obtain a replacement swap agreement with an Eligible Swap
Counterparty, the terms of which are substantially the same as the
current swap agreement (at which time the earlier swap agreement shall
terminate); or
(ii) Cause the swap counterparty to post collateral with the
Trustee in an amount equal to all payments owed by the counterparty if
the swap transaction were terminated; or
(iii) Terminate the swap agreement in accordance with its terms;
and
(e) Shall not require the Issuer to make any termination payments
to the counterparty (other than a currently scheduled payment under the
swap agreement) except from Excess Spread or other amounts that would
otherwise be payable to the Servicer or the Sponsor;
(10) Any class of Securities, to which one or more swap agreements
entered into by the Issuer applies, may be acquired or held in reliance
upon this Underwriter Exemption only by Qualified Plan Investors; and
(11) Prior to the issuance of any debt securities, a legal opinion
is received which states that the debt holders have a perfected
security interest in the Issuer's assets.
B. Neither any Underwriter, Sponsor, Trustee, Servicer, Insurer or
any Obligor, unless it or any of its Affiliates has discretionary
authority or renders investment advice with respect to the plan assets
used by a plan to acquire Securities, shall be denied the relief
provided under section I., if the provision of subsection II.A.(6) is
not satisfied with respect to acquisition or holding by a plan of such
Securities, provided that (1) such condition is disclosed in the
prospectus or private placement memorandum; and (2) in the case of a
private placement of Securities, the Trustee obtains a representation
from each initial purchaser which is a plan that it is in compliance
with such condition, and obtains a covenant from each initial purchaser
to the effect that, so long as such initial purchaser (or any
transferee of such initial purchaser's Securities) is required to
obtain from its transferee a representation regarding compliance with
the Securities Act of 1933, any such transferees will be required to
make a written representation regarding compliance with the condition
set forth in subsection II.A.(6).
III. Definitions
For purposes of this exemption:
A. Security means:
(1) A pass-through certificate or trust certificate that represents
a beneficial ownership interest in the assets of an Issuer which is a
Trust and which entitles the holder to payments of principal, interest
and/or other payments made with respect to the assets of such Trust; or
(2) A security which is denominated as a debt instrument that is
issued by, and is an obligation of, an Issuer; with respect to which
the Underwriter is either (i) the sole underwriter or the manager or
co-manager of the underwriting syndicate, or (ii) a selling or
placement agent.
B. Issuer means an investment pool, the corpus or assets of which
are held in trust (including a grantor or owner Trust) or whose assets
are held by a partnership, special purpose corporation or limited
liability company (which Issuer may be a Real Estate Mortgage
Investment Conduit (REMIC) or a Financial Asset Securitization
Investment Trust (FASIT) within the meaning of section 860D(a) or
section 860L, respectively, of the Code); and the corpus or assets of
which consist solely of:
(1) (a) Secured consumer receivables that bear interest or are
purchased at a discount (including, but not limited to, home equity
loans and obligations secured by shares issued by a cooperative housing
association); and/or
(b) Secured credit instruments that bear interest or are purchased
at a discount in transactions by or between business entities
(including, but not limited to, Qualified Equipment Notes Secured by
Leases); and/or
(c) Obligations that bear interest or are purchased at a discount
and which are secured by single-family residential, multi-family
residential and/or commercial real property (including obligations
secured by leasehold interests on residential or commercial real
property); and/or
(d) Obligations that bear interest or are purchased at a discount
and which are secured by motor vehicles or equipment, or Qualified
Motor Vehicle Leases; and/or
(e) Guaranteed governmental mortgage pool certificates, as defined
in 29 CFR 2510.3-101(i)(2) \6\; and/or
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\6\ In Advisory Opinion 99-05A (Feb. 22, 1999), the Department
expressed its view that mortgage pool certificates guaranteed and
issued by the Federal Agricultural Mortgage Corporation (``Farmer
Mac'') meet the definition of a guaranteed governmental mortgage
pool certificate as defined in 29 CFR 2510.3-101(i)(2).
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(f) Fractional undivided interests in any of the obligations
described in clauses (a)-(e) of this subsection B.(1).\7\
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\7\ The Department wishes to take the opportunity to clarify its
view that the definition of Issuer contained in subsection III.B.
includes a two-tier structure under which Securities issued by the
first Issuer, which contains a pool of receivables described above,
are transferred to a second Issuer which issues Securities that are
sold to plans. However, the Department is of the further view that,
since the Underwriter Exemption generally provides relief only for
the direct or indirect acquisition or disposition of Securities that
are not subordinated, no relief would be available if the Securities
held by the second Issuer were subordinated to the rights and
interests evidenced by other Securities issued by the first Issuer,
unless such Securities were issued in a Designated Transaction.
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Notwithstanding the foregoing, residential and home equity loan
[[Page 14983]]
receivables issued in Designated Transactions may be less than fully
secured, provided that: (i) the rights and interests evidenced by the
Securities issued in such Designated Transactions (as defined in
section III.DD.) are not subordinated to the rights and interests
evidenced by Securities of the same Issuer; (ii) such Securities
acquired by the plan have received a rating from a Rating Agency at the
time of such acquisition that is in one of the two highest generic
rating categories; and (iii) any obligation included in the corpus or
assets of the Issuer must be secured by collateral whose fair market
value on the Closing Date of the Designated Transaction is at least
equal to 80% of the sum of: (I) the outstanding principal balance due
under the obligation which is held by the Issuer and (II) the
outstanding principal balance(s) of any other obligation(s) of higher
priority (whether or not held by the Issuer) which are secured by the
same collateral.
(2) Property which had secured any of the obligations described in
subsection III.B.(1);
(3) (a) Undistributed cash or temporary investments made therewith
maturing no later than the next date on which distributions are made to
securityholders; and/or
(b) Cash or investments made therewith which are credited to an
account to provide payments to securityholders pursuant to any Eligible
Swap Agreement meeting the conditions of subsection II.A.(9) or
pursuant to any Eligible Yield Supplement Agreement; and/or
(c) Cash transferred to the Issuer on the Closing Date and
permitted investments made therewith which:
(i) Are credited to a Pre-Funding Account established to purchase
additional obligations with respect to which the conditions set forth
in paragraphs (a)-(g) of subsection II.A.(7) are met; and/or
(ii) Are credited to a Capitalized Interest Account; and
(iii) Are held by the Issuer for a period ending no later than the
first distribution date to securityholders occurring after the end of
the Pre-Funding Period.
For purposes of this paragraph (c) of subsection III.B.(3), the
term ``permitted investments'' means investments which: (i) are either:
(x) direct obligations of, or obligations fully guaranteed as to timely
payment of principal and interest by, the United States or any agency
or instrumentality thereof, provided that such obligations are backed
by the full faith and credit of the United States or (y) have been
rated (or the Obligor has been rated) in one of the three highest
generic rating categories by a Rating Agency; (ii) are described in the
Pooling and Servicing Agreement; and (iii) are permitted by the Rating
Agency.
(4) Rights of the Trustee under the Pooling and Servicing
Agreement, and rights under any insurance policies, third-party
guarantees, contracts of suretyship, Eligible Yield Supplement
Agreements, Eligible Swap Agreements meeting the conditions of
subsection II.A.(9) or other credit support arrangements with respect
to any obligations described in subsection III.B.(1).
Notwithstanding the foregoing, the term ``Issuer'' does not include
any investment pool unless: (i) the assets of the type described in
paragraphs (a)-(f) of subsection III.B.(1) which are contained in the
investment pool have been included in other investment pools, (ii)
Securities evidencing interests in such other investment pools have
been rated in one of the three (or in the case of Designated
Transactions, four) highest generic rating categories by a Rating
Agency for at least one year prior to the plan's acquisition of
Securities pursuant to this Underwriter Exemption, and (iii) Securities
evidencing interests in such other investment pools have been purchased
by investors other than plans for at least one year prior to the plan's
acquisition of Securities pursuant to this Underwriter Exemption.
C. Underwriter means:
(1) J.P. Morgan Chase & Company (the Applicant);
(2) Any person directly or indirectly, through one or more
intermediaries, controlling, controlled by or under common control with
the Applicant; or
(3) Any member of an underwriting syndicate or selling group of
which a person described in subsections III.C.(1) or (2) is a manager
or co-manager with respect to the Securities.
D. Sponsor means the entity that organizes an Issuer by depositing
obligations therein in exchange for Securities.
E. Master Servicer means the entity that is a party to the Pooling
and Servicing Agreement relating to assets of the Issuer and is fully
responsible for servicing, directly or through Subservicers, the assets
of the Issuer.
F. Subservicer means an entity which, under the supervision of and
on behalf of the Master Servicer, services loans contained in the
Issuer, but is not a party to the Pooling and Servicing Agreement.
G. ``Servicer'' means any entity which services loans contained in
the Issuer, including the Master Servicer and any Subservicer.
H. Trust means an Issuer which is a trust (including an owner
trust, grantor trust or a REMIC or FASIT which is organized as a
Trust).
I. Trustee means the Trustee of any Trust which issues Securities
and also includes an Indenture Trustee. ``Indenture Trustee'' means the
Trustee appointed under the indenture pursuant to which the subject
Securities are issued, the rights of holders of the Securities are set
forth and a security interest in the Trust assets in favor of the
holders of the Securities is created. The Trustee or the Indenture
Trustee is also a party to or beneficiary of all the documents and
instruments transferred to the Issuer, and as such, has both the
authority to, and the responsibility for, enforcing all the rights
created thereby in favor of holders of the Securities, including those
rights arising in the event of default by the servicer.
J. Insurer means the insurer or guarantor of, or provider of other
credit support for, an Issuer. Notwithstanding the foregoing, a person
is not an insurer solely because it holds Securities representing an
interest in an Issuer which are of a class subordinated to Securities
representing an interest in the same Issuer.
K. Obligor means any person, other than the Insurer, that is
obligated to make payments with respect to any obligation or receivable
included in the Issuer. Where an Issuer contains Qualified Motor
Vehicle Leases or Qualified Equipment Notes Secured by Leases,
``Obligor'' shall also include any owner of property subject to any
lease included in the Issuer, or subject to any lease securing an
obligation included in the Issuer.
L. Excluded Plan means any plan with respect to which any member of
the Restricted Group is a ``plan sponsor'' within the meaning of
section 3(16)(B) of the Act.
M. Restricted Group with respect to a class of Securities means:
(1) Each Underwriter;
(2) Each Insurer;
(3) The Sponsor;
(4) The Trustee;
(5) Each Servicer;
(6) Any Obligor with respect to obligations or receivables included
in the Issuer constituting more than 5 percent of the aggregate
unamortized principal balance of the assets in the Issuer, determined
on the date of the initial issuance of Securities by the Issuer;
(7) Each counterparty in an Eligible Swap Agreement; or
[[Page 14984]]
(8) Any Affiliate of a person described in subsections III.M.(1)-
(7).
N. Affiliate of another person includes:
(1) Any person directly or indirectly, through one or more
intermediaries, controlling, controlled by, or under common control
with such other person;
(2) Any officer, director, partner, employee, relative (as defined
in section 3(15) of the Act), a brother, a sister, or a spouse of a
brother or sister of such other person; and
(3) Any corporation or partnership of which such other person is an
officer, director or partner.
O. Control means the power to exercise a controlling influence over
the management or policies of a person other than an individual.
P. A person will be ``independent'' of another person only if:
(1) Such person is not an Affiliate of that other person; and
(2) The other person, or an Affiliate thereof, is not a fiduciary
who has investment management authority or renders investment advice
with respect to any assets of such person.
Q. Sale includes the entrance into a Forward Delivery Commitment,
provided:
(1) The terms of the Forward Delivery Commitment (including any fee
paid to the investing plan) are no less favorable to the plan than they
would be in an arm's-length transaction with an unrelated party;
(2) The prospectus or private placement memorandum is provided to
an investing plan prior to the time the plan enters into the Forward
Delivery Commitment; and
(3) At the time of the delivery, all conditions of this Underwriter
Exemption applicable to sales are met.
R. Forward Delivery Commitment means a contract for the purchase or
sale of one or more Securities to be delivered at an agreed future
settlement date. The term includes both mandatory contracts (which
contemplate obligatory delivery and acceptance of the Securities) and
optional contracts (which give one party the right but not the
obligation to deliver Securities to, or demand delivery of Securities
from, the other party).
S. Reasonable Compensation has the same meaning as that term is
defined in 29 CFR 2550.408c-2.
T. Qualified Administrative Fee means a fee which meets the
following criteria:
(1) The fee is triggered by an act or failure to act by the Obligor
other than the normal timely payment of amounts owing in respect of the
obligations;
(2) The Servicer may not charge the fee absent the act or failure
to act referred to in subsection III.T.(1);
(3) The ability to charge the fee, the circumstances in which the
fee may be charged, and an explanation of how the fee is calculated are
set forth in the Pooling and Servicing Agreement; and
(4) The amount paid to investors in the Issuer will not be reduced
by the amount of any such fee waived by the Servicer.
U. Qualified Equipment Note Secured By A Lease means an equipment
note:
(1) Which is secured by equipment which is leased;
(2) Which is secured by the obligation of the lessee to pay rent
under the equipment lease; and
(3) With respect to which the Issuer's security interest in the
equipment is at least as protective of the rights of the Issuer as the
Issuer would have if the equipment note were secured only by the
equipment and not the lease.
V. Qualified Motor Vehicle Lease means a lease of a motor vehicle
where:
(1) The Issuer owns or holds a security interest in the lease;
(2) The Issuer owns or holds a security interest in the leased
motor vehicle; and
(3) The Issuer's security interest in the leased motor vehicle is
at least as protective of the Issuer's rights as the Issuer would
receive under a motor vehicle installment loan contract.
W. Pooling and Servicing Agreement means the agreement or
agreements among a Sponsor, a Servicer and the Trustee establishing a
Trust. ``Pooling and Servicing Agreement'' also includes the indenture
entered into by the Issuer and the Indenture Trustee.
X. Rating Agency means Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies Inc., Moody's Investors Service,
Inc., Duff & Phelps Credit Rating Co., Fitch ICBA, Inc. or any
successors thereto.
Y. Capitalized Interest Account means an Issuer account: (i) Which
is established to compensate securityholders for shortfalls, if any,
between investment earnings on the Pre-Funding Account and the interest
rate payable under the Securities; and (ii) which meets the
requirements of paragraph (c) of subsection III.B.(3).
Z. Closing Date means the date the Issuer is formed, the Securities
are first issued and the Issuer's assets (other than those additional
obligations which are to be funded from the Pre-Funding Account
pursuant to subsection II.A.(7)) are transferred to the Issuer.
AA. Pre-Funding Account means an Issuer account: (i) Which is
established to purchase additional obligations, which obligations meet
the conditions set forth in paragraph (a)-(g) of subsection II.A.(7);
and (ii) which meets the requirements of paragraph (c) of subsection
III.B.(3).
BB. Pre-Funding Limit means a percentage or ratio of the amount
allocated to the Pre-Funding Account, as compared to the total
principal amount of the Securities being offered, which is less than or
equal to: (i) 40 percent, effective for transactions occurring on or
after January 1, 1992, but prior to May 23, 1997; and (ii) 25 percent,
for transactions occurring on or after May 23, 1997.
CC. Pre-Funding Period means the period commencing on the Closing
Date and ending no later than the earliest to occur of: (i) The date
the amount on deposit in the Pre-Funding Account is less than the
minimum dollar amount specified in the Pooling and Servicing Agreement;
(ii) the date on which an event of default occurs under the Pooling and
Servicing Agreement or (iii) the date which is the later of three
months or ninety days after the Closing Date.
DD. Designated Transaction means a securitization transaction in
which the assets of the Issuer consist of secured consumer receivables,
secured credit instruments or secured obligations that bear interest or
are purchased at a discount and are: (i) Motor vehicle, home equity
and/or manufactured housing consumer receivables; and/or (ii) motor
vehicle credit instruments in transactions by or between business
entities; and/or (iii) single-family residential, multi-family
residential, home equity, manufactured housing and/or commercial
mortgage obligations that are secured by single-family residential,
multi-family residential, commercial real property or leasehold
interests therein. For purposes of this section III.DD., the collateral
securing motor vehicle consumer receivables or motor vehicle credit
instruments may include motor vehicles and/or Qualified Motor Vehicle
Leases.
EE. Ratings Dependent Swap means an interest rate swap, or (if
purchased by or on behalf of the Issuer) an interest rate cap contract,
that is part of the structure of a class of Securities where the rating
assigned by the Rating Agency to any class of Securities held by any
plan is dependent on the terms and conditions of the swap and the
rating of the counterparty, and if such Security rating is not
dependent on the existence of the swap and rating of the counterparty,
such swap or cap shall be referred to as a ``Non-Ratings Dependent
Swap''. With respect to a Non-Ratings Dependent Swap, each Rating
Agency
[[Page 14985]]
rating the Securities must confirm, as of the date of issuance of the
Securities by the Issuer, that entering into an Eligible Swap with such
counterparty will not affect the rating of the Securities.
FF. Eligible Swap means a Ratings Dependent or Non-Ratings
Dependent Swap:
(1) Which is denominated in U.S. dollars;
(2) Pursuant to which the Issuer pays or receives, on or
immediately prior to the respective payment or distribution date for
the class of Securities to which the swap relates, a fixed rate of
interest, or a floating rate of interest based on a publicly available
index (e.g., LIBOR or the U.S. Federal Reserve's Cost of Funds Index
(COFI)), with the Issuer receiving such payments on at least a
quarterly basis and obligated to make separate payments no more
frequently than the counterparty, with all simultaneous payments being
netted;
(3) Which has a notional amount that does not exceed either: (i)
The principal balance of the class of Securities to which the swap
relates, or (ii) the portion of the principal balance of such class
represented solely by those types of corpus or assets of the Issuer
referred to in subsections III.B.(1), (2) and (3);
(4) Which is not leveraged (i.e., payments are based on the
applicable notional amount, the day count fractions, the fixed or
floating rates designated in subsection III.FF.(2), and the difference
between the products thereof, calculated on a one to one ratio and not
on a multiplier of such difference);
(5) Which has a final termination date that is either the earlier
of the date on which the Issuer terminates or the related class of
securities is fully repaid; and
(6) Which does not incorporate any provision which could cause a
unilateral alteration in any provision described in subsections
III.FF.(1) through (4) without the consent of the Trustee.
GG. Eligible Swap Counterparty means a bank or other financial
institution which has a rating, at the date of issuance of the
Securities by the Issuer, which is in one of the three highest long-
term credit rating categories, or one of the two highest short-term
credit rating categories, utilized by at least one of the Rating
Agencies rating the Securities; provided that, if a swap counterparty
is relying on its short-term rating to establish eligibility under the
Underwriter Exemption, such swap counterparty must either have a long-
term rating in one of the three highest long-term rating categories or
not have a long-term rating from the applicable Rating Agency, and
provided further that if the class of Securities with which the swap is
associated has a final maturity date of more than one year from the
date of issuance of the Securities, and such swap is a Ratings
Dependent Swap, the swap counterparty is required by the terms of the
swap agreement to establish any collateralization or other arrangement
satisfactory to the Rating Agencies in the event of a ratings downgrade
of the swap counterparty.
HH. Qualified Plan Investor means a plan investor or group of plan
investors on whose behalf the decision to purchase Securities is made
by an appropriate independent fiduciary that is qualified to analyze
and understand the terms and conditions of any swap transaction used by
the Issuer and the effect such swap would have upon the credit ratings
of the Securities. For purposes of the Underwriter Exemption, such a
fiduciary is either:
(1) A qualified professional asset manager (QPAM),\8\ as defined
under Part V(a) of PTE 84-14, 49 FR 9494, 9506 (March 13, 1984);
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\8\ PTE 84-14 provides a class exemption for transactions
between a party in interest with respect to an employee benefit plan
and an investment fund (including either a single customer or pooled
separate account) in which the plan has an interest, and which is
managed by a QPAM, provided certain conditions are met. QPAMs (e.g.,
banks, insurance companies, registered investment advisers with
total client assets under management in excess of $50 million) are
considered to be experienced investment managers for plan investors
that are aware of their fiduciary duties under ERISA.
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(2) An in-house asset manager (INHAM),\9\ as defined under Part
IV(a) of PTE 96-23, 61 FR 15975, 15982 (April 10, 1996); or
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\9\ PTE 96-23 permits various transactions involving employee
benefit plans whose assets are managed by an INHAM, an entity which
is generally a subsidiary of an employer sponsoring the plan which
is a registered investment adviser with management and control of
total assets attributable to plans maintained by the employer and
its affiliates which are in excess of $50 million.
---------------------------------------------------------------------------
(3) A plan fiduciary with total assets under management of at least
$100 million at the time of the acquisition of such Securities.
II. Excess Spread means, as of any day funds are distributed from
the Issuer, the amount by which the interest allocated to Securities
exceeds the amount necessary to pay interest to securityholders,
servicing fees and expenses.
JJ. Eligible Yield Supplement Agreement means any yield supplement
agreement, similar yield maintenance arrangement or, if purchased by or
on behalf of the Issuer, an interest rate cap contract to supplement
the interest rates otherwise payable on obligations described in
subsection III.B.(1). Effective for transactions occurring on or after
April 7, 1998, such an agreement or arrangement may involve a notional
principal contract provided that:
(1) It is denominated in U.S. dollars;
(2) The Issuer receives on, or immediately prior to the respective
payment date for the Securities covered by such agreement or
arrangement, a fixed rate of interest or a floating rate of interest
based on a publicly available index (e.g., LIBOR or COFI), with the
Issuer receiving such payments on at least a quarterly basis;
(3) It is not ``leveraged'' as described in subsection III.FF.(4);
(4) It does not incorporate any provision which would cause a
unilateral alteration in any provision described in subsections
III.JJ.(1)-(3) without the consent of the Trustee;
(5) It is entered into by the Issuer with an Eligible Swap
Counterparty; and
(6) It has a notional amount that does not exceed either: (i) The
principal balance of the class of Securities to which such agreement or
arrangement relates, or (ii) the portion of the principal balance of
such class represented solely by those types of corpus or assets of the
Issuer referred to in subsections III.B.(1), (2) and (3).
The availability of this exemption is subject to the express
condition that the material facts and representations contained in the
application for exemption are true and complete and accurately describe
all material terms of the transactions. In the case of continuing
transactions, if any of the material facts or representations described
in the application change, the exemption will cease to apply as of the
date of such change. In the event of any such change, an application
for a new exemption must be made to the Department.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this individual exemption
to modify the Exemptions, refer to the notice of proposed individual
exemption to modify the Exemptions that was published on January 18,
2002 at 67 FR 2699.
EFFECTIVE DATE: This exemption is effective as of March 13, 2002.
Signed at Washington, DC, this 25th day of March, 2002.
Ivan L. Strasfeld,
Director of Exemption, Determinations, Pension and Welfare Benefits
Administration, U.S. Department of Labor.
[FR Doc. 02-7518 Filed 3-27-02; 8:45 am]
BILLING CODE 4510-29-P