7 TAC §§129.1-129.9
The State Securities Board adopts new §§129.1-129.9,
concerning administrative guidelines for registration of asset-backed securities.
Section 129.1 was adopted with three changes to the proposed text as published
in the October 15, 1996, issue of the
Texas Register
(21 TexReg 10143). First, a change was made to §129.1(b)(5)(C),
to make the definition of "affiliate" more consistent with the definition
of "affiliate" contained in §107.2 of the Board's rules, relating to
Definitions. Second, a cross-reference to the definition of "rating agency"
was added to the definition of "investment grade" contained in §129.1(b)(13).
Finally, "limited liability company" was added to the list contained in the
definition of "person" located at §129.1(b)(23). Sections 129.2-129.9
were adopted without changes and will not be republished.
The new sections substantially reflect the guidelines for registration
of asset-backed securities adopted by the North American Securities Administrators
Association, Inc. ("NASAA"), with the exception that, as was noted in the
proposal, certain items were removed from the list of representations prohibited
in the subscription agreement.
The new rules will provide a substantial degree of consistency with uniform
guidelines for the registration of asset-backed securities.
One comment letter was received on the proposals. The letter, from Cadwalader,
Wickersham & Taylor, commented against the adoption of the proposal without
substantial revisions thereto. The letter requested the Board to create an
exception from the applicability of the guidelines for investment grade-rated
asset-backed securities. The letter also asked the Board to consider a variety
of changes to the guidelines previously suggested by the commenter to NASAA
during its comment period on the guidelines on which for these sections were
based. The Board disagrees. These sections already contain numerous exceptions
from the applicability of its provisions for asset-backed securities with
an investment grade rating. The sections would provide more guidance to filers
than the more general "fair, just and equitable" standard for review which
would be used in the absence of these sections. The remaining modifications
suggested were previously considered, addressed, and resolved in NASAA's
development of the guidelines which form the basis for these rule sections.
The new sections are adopted under Texas Civil Statutes, Article
581-28-1. Section 28-1 provides the Board with the authority to adopt rules
and regulations necessary to carry out and implement the provisions of the
Texas Securities Act, including rules and regulations governing registration
statements and applications; defining terms; classifying securities, persons,
and matters within its jurisdiction; and prescribing different requirements
for different classes.
§129.1.Introduction.
(a)
Application.
(1)
These guidelines apply to the registration of asset-backed
securities, as defined in subsection (b)(7) of this section, and will be
applied by analogy to similar securities issued by issuers that are not required
to register as an investment company under the Investment Company Act of
1940.
(2)
While applications not conforming to the standards
contained in this chapter shall be looked upon with disfavor, where good
cause is shown, certain guidelines may be modified or waived by the Securities
Commissioner.
(b)
Definitions. The following words and terms, when used in
this chapter, shall have the following meanings, unless the context clearly
indicates otherwise.
(1)
Acquisition cost - The cost of an eligible asset as reflected
on the issuer's balance sheet, net of applicable acquisition expenses and
origination fees.
(2)
Acquisition criteria - The specified characteristics
an eligible asset is required to possess in order for it to be sufficiently
similar to other eligible assets to make possible a reliable prediction of
the cash flows associated with the eligible assets when pooled in large numbers.
(3)
Acquisition expenses - All direct and indirect expenses
incurred by the issuer in connection with the selection and acquisition of
eligible assets, whether or not acquired, other than origination fees.
(4)
Administrator - Referred to as "Securities Commissioner"
throughout these guidelines.
(5)
Affiliate - With respect to another person, any of
the following:
(A)
any person directly or indirectly owning, controlling,
or holding, with power to vote, 10% or more of the outstanding voting securities
of such other person;
(B)
any person 10% or more of whose outstanding voting securities
are directly or indirectly owned, controlled, or held, with power to vote,
by such other person;
(C)
any person that directly, or indirectly through one or
more intermediaries, controls or is controlled by, or is under common control
with, the person specified;
(D)
any executive officer, director, trustee, or partner of
such other person; or
(E)
any legal entity for which such person acts as an executive
officer, director, trustee, or partner.
(6)
Allowed expenses - Trustee fees, ongoing fees
paid to rating agencies, servicing fees, origination fees, acquisition expenses,
liquidation expenses, bank service charges, taxes, attorneys' fees, audit
fees, and other direct charges incurred by the issuer in the ordinary course
of the issuer's business, exclusive of organizational and offering expenses,
conversion expenses, and extraordinary expenses.
(7)
Asset-Backed securities - Securities that provide
a stated rate of return to security holders and that are primarily serviced
as to both return of investment and return on investment by the cash flow
from designated eligible assets, excluding:
(A)
the securities of an investment company subject to the
Investment Company Act of 1940; and
(B)
equity interests in limited partnerships or other direct
investment vehicles subject to other applicable registration guidelines.
(8)
Cash flow - The amount of cash generated from
operations, calculated in compliance with Financial Accounting Standard 95,
plus receipts from the disposition or liquidation of eligible assets.
(9)
Collections account - The bank account created to
receive cash flow generated by the eligible assets and to maintain the segregation
of such cash from other assets of the servicer.
(10)
Conversion expenses - The expenses associated with
changing from one servicer to another servicer or one trustee to another
trustee.
(11)
Credit enhancement - Insurance, letters of credit,
lines of credit, over collateralization, seller recourse, reserve accounts,
senior claim, guarantees, and other arrangements intended to decrease the
likelihood of default on the asset-backed securities.
(12)
Eligible assets - Financial or commercial assets,
either fixed or revolving, which are:
(A)
generally homogenous in nature;
(B)
subject to reasonably objective valuation;
(C)
for other than asset-backed securities with an investment
grade rating, self-liquidating or easily liquidated; and
(D)
for other than asset-backed securities with an investment
grade rating, capable of generating a predictable cash flow.
(13)
Investment grade - A rating that is in one of
the four highest rating categories as determined by a rating agency as defined
in paragraph (25) of this subsection.
(14)
Issuer - The entity formed to issue the asset-backed
securities and to hold ownership of, or a security interest in, the eligible
assets.
(15)
Liquidation expenses - The expenditures necessary
to convert residual or non-performing eligible assets, or any underlying
collateral, into cash, including expenditures necessary to collect on insurance
or other credit enhancements.
(16)
Net worth - The excess of total assets over total
liabilities as determined by generally accepted accounting principles.
(17)
Obligor - A person obligated to make the payments
on or under an eligible asset.
(18)
Operating account - The bank account created to receive
offering proceeds and revenues from the collections account which are not
required to be transferred to the trust account, and from which payments
are made for additional eligible assets and allowed expenses.
(19)
Organizational and offering expenses - All expenses
incurred in connection with and in preparing the asset-backed securities
for registration and subsequently offering and distributing the asset-backed
securities to the public. Organizational and offering expenses include, but
are not limited to, total underwriting and brokerage discounts and commissions
(including fees of the underwriters' attorneys), initial fees paid to rating
agencies, expenses for printing, engraving, mailing, salaries of employees
while engaged in sales activity, charges of transfer agents, registrars,
trustees, escrow holders, depositaries, experts, expenses of qualification
of the sale of the securities under federal and state laws, including taxes
and fees, and accountants' and attorneys' fees.
(20)
Origination fees - All fees, commissions, or other
consideration, other than the purchase price of the eligible assets, paid
by any party to any party in connection with the origination and sale of
eligible assets to the issuer. Origination fees does not include professional
fees paid to attorneys, accountants, appraisers, initial fees paid to rating
agencies, and similar professionals for providing routine professional services,
which fees shall be deemed acquisition expenses.
(21)
Originator - An entity, which may or may not be the
sponsor, that creates or originates, directly or indirectly, eligible assets
to be sold or pledged, to the issuer.
(22)
Paying agent - The trustee or other entity responsible
for disbursing funds from the trust account to the security holders in satisfaction
of the issuer's obligation for payments on the asset-backed securities.
(23)
Person - Any natural person, partnership, limited
liability company, corporation, association, trust, or other legal entity.
(24)
Prospectus - The primary disclosure document(s),
by whatever name known, utilized for the purpose of offering and selling
asset-backed securities to the public.
(25)
Rating agency - Standard and Poor's Ratings Group,
a division of McGraw Hill Company; Moody's Investors Service, Inc.; Fitch
Investors Service, Inc.; Duff and Phelps Credit Rating Co.; or a successor
to any of the foregoing.
(26)
Security holders - The persons in whose names the
issuer's asset-backed securities are held and to whom payments pursuant to
the terms of the trust agreement are entitled to be made.
(27)
Servicer - The entity responsible for the management
of the issuer's assets and the conversion of such assets into the cash flow
necessary to make stated payments on the asset-backed securities.
(28)
Servicing agreement - The contract that establishes
the responsibilities and compensation of the servicer.
(29)
Servicing fees - Compensation paid to the servicer
pursuant to the terms of the servicing agreement.
(30)
Special purpose entity - A trust, corporation, partnership,
limited liability company, or other legal entity formed for the purpose of
making one or more offerings of asset-backed securities, holding an ownership
interest or a security interest in the eligible assets, and forwarding the
cash flows from the eligible assets to the security holders.
(31)
Sponsor - Any person directly or indirectly instrumental
in organizing, wholly or in part, an issuer or any person, other than the
trustee, who will control, manage, or participate in the management of an
issuer or its assets. Not included is any person whose only relationship
with the issuer is that of an independent servicer of the issuer's eligible
assets, and whose only compensation is as such. "Sponsor" does not include
wholly independent third parties such as attorneys, accountants, rating agencies,
and underwriters whose only compensation is for professional services rendered
in connection with the offering of asset-backed securities.
(32)
Stated rate of return - A return where the security
holder is entitled to receive either:
(A)
a stated principal amount;
(B)
interest on the principal amount (which may be a notional
principal amount) calculated by reference to:
(i)
a fixed rate, or
(ii)
a standard or formula which does not reference any change
in the market value or fair value of eligible assets;
(C)
interest on a principal amount (which may be a notional
principal amount) calculated by reference to:
(i)
auctions among security holders and prospective security
holders, or
(ii)
a periodic remarketing of the asset-backed security;
(D)
an amount representing specified fixed or variable portions
of the interest generated by the underlying eligible assets; or
(E)
any combination of subparagraphs (A)-(D) of this paragraph.
(33)
Trust account - The bank account created to
receive funds from the collections account and the operating account and
from which payments are made on the asset-backed securities of the issuer.
(34)
Trust agreement - The governing document(s), by whatever
name, which defines the pooling arrangements and which establishes the rights,
privileges, duties, and responsibilities of the trustee, the issuer, the
security holders, and, in some cases, the servicer in connection with the
issuance of the asset-backed securities. The trust established by the trust
agreement may or may not be a taxable entity and it may or may not serve
as the issuer of the asset-backed securities. The trust agreement may include
the servicing agreement.
(35)
Trustee - The financial institution meeting the requirements
under §129.5 of this title (relating to Requirements of Trustees) which
is party to the trust agreement and which has the primary responsibility
of representing the interests of the security holders by assuring the terms
of the trust agreement are enforced.
(36)
Trustee fees - The fees and other consideration paid
to the trustee for performing services under the trust agreement.
This agency hereby certifies that the adoption has been
reviewed by legal counsel and found to be a valid exercise of the agency's
legal authority.
Issued in Austin, Texas, on January 21, 1997.
TRD-9700917
Denise Voigt Crawford
Securities Commissioner
State Securities Board
Effective date: February 11, 1997
Proposal publication date: October 15, 1996
For further information, please call: (512) 305-8300