(a) Definitions. For purposes
of this section, the following definitions shall apply:
Municipal security or municipal
securities shall have the same meaning as the term “municipal
securities” in section 3(a)(29) of the Securities Exchange Act of
1934 (15 U.S.C. 78c(a)(29)) and any rules promulgated pursuant to
such section.
Qualified tender
option bond entity means an issuing entity with respect to tender
option bonds for which each of the following applies:
(i) Such entity is collateralized
solely by servicing assets and by municipal securities that have the
same municipal issuer and the same underlying obligor or source of
payment (determined without regard to any third-party credit enhancement),
and such municipal securities are not subject to substitution.
(ii) Such entity issues no securities
other than:
(A) A single
class of tender option bonds with a preferred variable return payable
out of capital that meets the requirements of paragraph (b) of this
section, and
(B) One or more residual
equity interests that, in the aggregate, are entitled to all remaining
income of the issuing entity.
(C) The
types of securities referred to in paragraphs (ii)(A) and (B) of this
definition must constitute asset-backed securities.
(iii) The municipal securities held
as assets by such entity are issued in compliance with section 103
of the Internal Revenue Code of 1986, as amended (the “IRS Code”,
26 U.S.C. 103), such that the interest payments made on those securities
are excludable from the gross income of the owners under section 103
of the IRS Code.
(iv) The terms
of all of the securities issued by the entity are structured so that
all holders of such securities who are eligible to exclude interest
received on such securities will be able to exclude that interest
from gross income pursuant to section 103 of the IRS Code or as “exempt-interest
dividends” pursuant to section 852(b)(5) of the IRS Code (26 U.S.C.
852(b)(5)) in the case of regulated investment companies under the
Investment Company Act of 1940, as amended.
(v) Such entity has a legally binding
commitment from a regulated liquidity provider as defined in section
244.6(a), to provide a 100 percent guarantee or liquidity coverage
with respect to all of the issuing entity’s outstanding tender option
bonds.
(vi) Such entity qualifies
for monthly closing elections pursuant to IRS Revenue Procedure 2003-84,
as amended or supplemented from time to time.
Tender option bond means a security
which has features which entitle the holders to tender such bonds
to the issuing entity for purchase at any time upon no more than 397
days’ notice, for a purchase price equal to the approximate amortized
cost of the security, plus accrued interest, if any, at the time of
tender.
(b) Risk retention
options. Notwithstanding anything in this section, the sponsor
with respect to an issuance of tender option bonds may retain an eligible
vertical interest or eli gible horizontal residual interest, or any combination
thereof, in accordance with the requirements of section 244.4. In
order to satisfy its risk retention requirements under this section,
the sponsor with respect to an issuance of tender option bonds by
a qualified tender option bond entity may retain:
(1) An eligible vertical interest or an
eligible horizontal residual interest, or any combination thereof,
in accordance with the requirements of section 244.4; or
(2) An interest that meets the requirements
set forth in paragraph (c) of this section; or
(3) A municipal security that meets the
requirements set forth in paragraph (d) of this section; or
(4) Any combination of interests and securities
described in paragraphs (b)(1) through (b)(3) of this section such
that the sum of the percentages held in each form equals at least
five.
(c) Tender option
termination event. The sponsor with respect to an issuance of
tender option bonds by a qualified tender option bond entity may retain
an interest that upon issuance meets the requirements of an eligible
horizontal residual interest but that upon the occurrence of a “tender
option termination event” as defined in section 4.01(5) of IRS Revenue
Procedure 2003-84, as amended or supplemented from time to time will
meet the requirements of an eligible vertical interest.
(d) Retention of a municipal security outside of
the qualified tender option bond entity. The sponsor with respect
to an issuance of tender option bonds by a qualified tender option
bond entity may satisfy its risk retention requirements under this
section by holding municipal securities from the same issuance of
municipal securities deposited in the qualified tender option bond
entity, the face value of which retained municipal securities is equal
to 5 percent of the face value of the municipal securities deposited
in the qualified tender option bond entity.
(e) Disclosures. The sponsor shall provide,
or cause to be provided, to potential investors a reasonable period
of time prior to the sale of the asset-backed securities as part of
the securitization transaction and, upon request, to the Commission
and its appropriate Federal banking agency, if any, the following
disclosure in written form under the caption “Credit Risk Retention”:
(1) The name and form of
organization of the qualified tender option bond entity;
(2) A description of the form and subordination
features of such retained interest in accordance with the disclosure
obligations in section 244.4(c);
(3) To the extent any portion of the retained interest is claimed
by the sponsor as an eligible horizontal residual interest (including
any interest held in compliance with section 244.10(c)), the fair
value of that interest (expressed as a percentage of the fair value
of all of the ABS interests issued in the securitization transaction
and as a dollar amount);
(4) To
the extent any portion of the retained interest is claimed by the
sponsor as an eligible vertical interest (including any interest held
in compliance with section 244.10(c)), the percentage of ABS interests
issued represented by the eligible vertical interest; and
(5) To the extent any portion of the retained
interest claimed by the sponsor is a municipal security held outside
of the qualified tender option bond entity, the name and form of organization
of the qualified tender option bond entity, the identity of the issuer
of the municipal securities, the face value of the municipal securities
deposited into the qualified tender option bond entity, and the face
value of the municipal securities retained by the sponsor or its majority-owned
affiliates and subject to the transfer and hedging prohibition.
(f) Prohibitions on hedging
and transfer. The prohibitions on transfer and hedging set forth
in section 244.12, apply to any interests or municipal securities
retained by the sponsor with respect to an issuance of tender option
bonds by a qualified tender option bond entity pursuant to of this
section.
