MUNICIPAL SECURITIZER OF STUDENT LOANS REPURCHASE REPORTS DUE TO SEC ON 2/14/15

Transcription

1 MUNICIPAL SECURITIZER OF STUDENT LOANS REPURCHASE REPORTS DUE TO SEC ON 2/14/15 Securities and Exchange Commission ( SEC ) Rule 15Ga-1 (the Rule ) requires securitizers of asset-backed securities to report fulfilled and unfulfilled requests to repurchase or replace the assets (i.e., student loans) underlying their asset-backed securities (i.e., bonds or notes). Although the SEC initially delayed compliance with the Rule for municipal securitizers of assetbacked securities, including municipal securitizers of student-loan asset-backed securities ( Municipal Student Loan Asset-Backed Issuers ), the delayed compliance has ended and the first reports required by the Rule must be filed no later than February 14, This Client Mailer discusses the Rule, the information required to be reported by the Rule, the applicable reporting periods and deadlines provided for in the Rule, and provides an analysis to assist Municipal Student Loan Asset-Backed Issuers in identifying those assets and asset-backed securities that are subject to the Rule. Also attached are examples of the SEC s Form and Table to be filed, as well as examples of various possible narratives and footnotes for the Table. THE RULE In general, the Rule requires a Municipal Student Loan Asset-Backed Issuer to now file reports regarding the repurchase activity of loans (including student loans) that secure or collateralize bonds or notes (or other securities) issued by the Municipal Student Loan Asset-Backed Issuer where the bond or noteholder receives bond or note payments that depend primarily on the cash flow from those loans. (The final Rule and SEC commentary can be found at As directed by Section 943 of the Dodd Frank Wall Street Reform and Consumer Protection Act ( Dodd-Frank ), the SEC adopted the Rule which states, in relevant part: (a) General. With respect to any asset-backed security (as that term is defined in Section 3(a)(77) of the Securities Exchange Act of 1934) for which the underlying transaction agreements contain a covenant to repurchase or replace an underlying asset for breach of a representation or warranty, a securitizer (as that term is defined in Section 15G(a) of the Securities Exchange Act of 1934) shall disclose fulfilled and unfulfilled repurchase requests across all trusts by providing the information required in paragraph (1) concerning all assets securitized by the securitizer that were the subject of a demand to repurchase or replace for breach of the representations and warranties concerning the pool of assets for all asset-backed securities held by non-affiliates of the securitizer during the reporting period. Dodd Frank defines (i) a securitizer as either an issuer of asset-backed securities or a person who organizes and initiates an asset-backed securities transaction by selling or transferring assets, either directly or indirectly, including through an affiliate, to the issuer, (ii) a

2 municipal securitizer as any securitizer that is any State or Territory of the United States, the District of Columbia, any political subdivision of any State, Territory or the District of Columbia, or any public instrumentality of one or more States, Territories or the District of Columbia, and (iii) an asset-backed security as: [A] fixed-income or other security collateralized by any type of self-liquidating financial asset (including a loan, a lease, a mortgage or a secured or unsecured receivable) that allows the holder of the security to receive payments that depend primarily on cash flow from the asset.... What does this mean for Municipal Student Loan Asset-Backed Issuers? Essentially, that a note or bond (or other obligation) issued by a Municipal Student Loan Asset-Backed Issuer triggers compliance with the Rule if the securities issuance is secured or collateralized by a student loanbacked security ( Student Loan Backed Security ), a student loan or any other program loan or financial asset that is self-liquidating (collectively, Underlying Assets ) and the holder of the Municipal Student Loan Asset-Backed Issuer s bonds or notes receives payments that depend primarily on cash flow from the Underlying Assets. It is important to note that the Rule only applies if the documents creating the Underlying Assets that secure or collateralize a Municipal Student Loan Asset-Backed Issuer s bonds contain a covenant to repurchase or replace the Underlying Assets for breach of a representation or warranty relating to the Underlying Assets ( Repurchase Covenants ). These Repurchase Covenants include not only those relating to underwriting standards but all representations and warranties relating to the Underlying Assets, such as applicable laws or fraud. INFORMATION REQUIRED TO BE REPORTED Repurchase activity required to be reported by the Rule is to be reported on SEC Form ABS-15G (the Form ) and an accompanying table (the Table and together with the Form, a Report ). In completing the Form, information is to specify the applicable filing period, certain identifying information of the Municipal Student Loan Asset-Backed Issuer and whether the Municipal Student Loan Asset-Backed Issuer has any repurchase activity to report for the filing period. (Note: as described below, the first reporting period for Municipal Student Loan Asset-Backed Issuers covers the 3-year period ending December 31, 2014.) The Form also contains general instructions and the Table contains the specific information that is to be included in it. The Form must be signed by the senior officer of the Municipal Student Loan Asset-Backed Issuer in charge of securities issuance. The Table is designed to include a summary of the information regarding repurchase activity required by the Rule: the asset class (which, with respect to Municipal Student Loan Asset-Backed Issuers, includes student loan-backed securities); the name of the trust indenture/bond resolution, listed in the order of the date of formation; 2

3 whether the transaction was registered under the Securities Act of 1933, as amended; the names of each originator of the Underlying Assets of each class (this requirement includes all originators that originated Underlying Assets in the asset class for each indenture but in many cases may just be the Municipal Student Loan Asset-Backed Issuer itself); the number, outstanding principal balance and percentage by principal balance of Underlying Assets of each class at the time of securitization ; the number, outstanding principal balance and percentage by principal balance of Underlying Assets of each class that during the reporting period were the subject of a demand to repurchase or replace for breach of warranties and representations (which would include all warranties and representations made with respect to the Underlying Assets); the number, outstanding principal balance and percentage by principal balance of Underlying Assets of each class that during the reporting period were repurchased or replaced for breach of representations and warranties; and the outstanding principal balance and percentage by principal balance of Underlying Assets of each class that are: (1) pending repurchase or replacement for breach of representations and warranties due to the expiration of a cure period, (2) pending repurchase or replacement because the demand is currently in dispute, and (3) not purchased or replaced because the demand was rejected. In the event a Municipal Student Loan Asset-Backed Issuer does not have access to the information listed above and cannot obtain such information without unreasonable effort or expense, the Rule allows the Municipal Student Loan Asset-Backed Issuer to provide the information it has, or can obtain without unreasonable effort and expense, if the Municipal Student Loan Asset-Backed Issuer includes a statement in the Table indicating that unreasonable effort and expense is required to obtain the omitted information. The instructions to the Report also ask Securitizers to [i]ndicate by footnote and provide narrative disclosure in order to further explain the information presented in the table, as appropriate. These provisions provide a Municipal Student Loan Asset-Backed Issuer with some flexibility in completing the Table. For a Municipal Student Loan Asset-Backed Issuer, the Report may either be filed electronically with the Securities and Exchange Commission (the SEC ) through its EDGAR system or may be filed on the Municipal Securities Rule Making Board s ( MSRB ) Electronic Municipal Market Access ( EMMA ) system in a word-searchable, PDF format (per MSRB Rule). With respect to filing with the SEC on EDGAR, Municipal Student Loan Asset-Backed Issuer s that have not previously had to file reports with the SEC will need to obtain filing codes by filing a FORM ID with the SEC and obtaining a CIK number (which may take some time). With respect to filing on the EMMA system, which is probably the more familiar method for filing for Municipal Student Loan Asset-Backed Issuers, the MSRB has updated EMMA to allow it to receive and publicly make available submissions of Reports. 3

4 REPORTING PERIODS AND DEADLINES The initial reporting period for issuers of municipal securities, such as Municipal Student Loan Asset-Backed Issuers, is the three-year period ending on December 31, 2014 (the Initial Period ). Any Municipal Student Loan Asset-Backed Issuer that issued notes or bonds with Repurchase Covenants during the Initial Period is required to file a Report covering the repurchase activity during the Initial Period with respect to all of its outstanding notes or bonds issued under the same indenture/resolution. The Report for the period ending December 31, 2014 is required to be filed on the MSRB s EMMA website no later than February 14, Subsequent to the Initial Period, the Rule requires the filing of quarterly Reports. The deadline for filing quarterly Reports is 45 calendar days following the end of the applicable calendar quarter (so initially for quarterly reports May 15, 2015). Municipal Student Loan Asset-Backed Issuers that have issued bonds or notes during the quarter or have outstanding bonds or notes at the end of the quarter regardless of when issued (in each case, with respect to which Repurchase Covenants are contained in the underlying program documents) are required to file a Report covering the repurchase activity related to the Underlying Assets securing such bonds or notes during that quarter. If a Municipal Student Loan Asset-Backed Issuer has no repurchase activity to report in either the Initial Period or any subsequent quarter, it can indicate the same by checking a box on the Form. Doing so suspends the Municipal Student Loan Asset-Backed Issuer s obligation to file quarterly Reports until there is a quarter in which reportable repurchase activity occurs. However, even if the obligation to file quarterly Reports is suspended, the Rule requires that a Municipal Student Loan Asset-Backed Issuer file the Form annually to confirm that no repurchase activity has occurred for the preceding calendar year. This is done by checking the box on the Form indicating that there is no repurchase activity to report for the calendar year. APPLICATION OF THE RULE The following five-step analysis will assist a Municipal Student Loan Asset-Backed Issuer in identifying which of its notes, bonds and Underlying Assets are subject to the Rule s reporting requirements: Step 1: A. For the Initial Period, identify the Municipal Student Loan Asset-Backed Issuer s securities that were issued during the Initial Period. B. For the subsequent quarterly reports, identify the Municipal Student Loan Asset-Backed Issuer s securities that were either issued during the quarter or outstanding at the end of the quarter regardless of when issued. Step 2: Identify the trust indenture or resolution under which the securities identified in Step 1 were issued. 4

5 Step 3: Step 4: Step 5: Identify the classes of assets (e.g., student loans) pledged as security or collateral under each trust indenture or resolution identified in Step 2. Identify which classes of assets identified in Step 3 are self-liquidating or amortizing assets the payments from which the Municipal Student Loan Asset- Backed Issuer uses or relies upon to make payments to its securityholders. Determine whether the documents that create the classes of assets identified in Step 4 contain any Repurchase (or Replacement) Covenants. The repurchase activity for the classes of assets identified above is required to be reported on an indenture by indenture basis, and within an indenture/resolution by the applicable lender (including the issuer). For purposes of the Rule, each open or parity indenture or resolution (together with all of its series/supplemental indentures) is considered a single indenture. Example of Form and Table Although the cover reporting Form is generally prescribed by the SEC, the Table of information is more of a general form. The SEC encourages filers to freely use footnotes to explain Table entries and assumptions. (For example, Fannie Mae has five pages of footnotes in its report.) We strongly suggest Municipal Student Loan Asset-Backed Issuers freely use footnotes and narratives to explain their Tables and particular reporting positions where needed. Attached is an example of the SEC Form, modified to illustrate a filing by a Municipal Student Loan Asset-Backed Issuer (on EMMA rather than on EDGAR), and a completed Table, each annotated to provide additional information about the various fields and columns on the Form and Table. Also attached are examples of sample Table Narratives or Footnotes that might be helpful to Municipal Student Loan Asset-Backed Issuers who chose to file on EMMA rather than EDGAR (some of the information in the Form that may be inapplicable on EMMA (such as a CIK filing code) would be applicable for any Municipal Student Loan Asset-Backed Issuer that chooses to file on EDGAR. January 29, 2015 This Public Finance Client Alert is a publication of Kutak Rock LLP. This publication is intended to notify our clients and friends of current events and provide general information about public finance issues. This Kutak Rock LLP Public Finance Client Alert is not intended, nor should it be used, as legal advice, and it does not create an attorney client relationship. Kutak Rock LLP 2015 All Rights Reserved This communication may be considered advertising in some jurisdictions. 5

6 [Sample Form Based on SEC FORM ABS-15G] UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. Form ABS-15G ASSET-BACKED SECURITIZER REPORT PURSUANT TO SECTION 15G OF THE SECURITIES EXCHANGE ACT OF 1934 Check the appropriate box to indicate the filing obligation to which this form is intended to satisfy: Rule 15Ga-1 under the Exchange Act (17CFR Ga-1(c) [(1) or (2)]) for the reporting period [January 1, 2012 to December 31, 2014] Date of Report [February 14, 2015] XYZ MUNICIPAL STUDENT LOAN ASSET-BACKED ISSUER 1 (Name of securitizer) Commission File Number of securitizer: N/A 2 Central Index Key Number of securitizer: N/A 3 Ms. Jane Doe (123) Name and telephone number, including area code, of the person to contact in connection with this filing. Indicate by check mark whether the securitizer has no activity to report for the initial period pursuant to Rule 15GA-1(c)(1) 4 Indicate by check mark whether the securitizer has no activity to report for the quarterly period pursuant to Rule 15GA-1(c)(2)(i) 4 Indicate by check mark whether the securitizer has no activity to report for the annual period pursuant to Rule 15GA-1(c)(2)(ii) 4 1 Note that the SEC does not ask for the name of the filing entity on its Form ABS-15G. Since the SEC s form is not to be used as a blank to be filled in, but only as a guide in the preparation of the report it would be appropriate to include the name of the securitizer on the Form. See General Instruction C. Preparation of Report. 2 Uncertain at this time whether the SEC will assign Commission File Numbers to municipal issuers such as Municipal Student Loan Asset-Backed Issuers. 3 Unless this form is filed with the SEC on EDGAR, Central Index Key Numbers should not apply to municipal securitizers such as Municipal Student Loan Asset-Backed Issuers who file on EMMA. Another option to indicating the number as not applicable is removing this line from the Form. 4 These options are to be used, if any apply to indicate no reportable activity for the related period.

7 REPRESENTATION AND WARRANTY INFORMATION The disclosures required by Rule 15Ga-1 according to the requirements of Rule 15Ga-1(c) [(1) or (2)] for the [three year period ended December 31, 2014] [quarterly period ended MONTH DAY, 20 ] [annual period ended December 31, 20 ] are attached to this report as Exhibit 1, and incorporated herein by this reference. The securitizer named below has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. XYZ MUNICIPAL STUDENT LOAN ASSET-BACKED ISSUER By: Its: [print name] [print title] Dated:

8 [SEC FORM GENERAL INSTRUCTIONS 1 ] A. Rule as to Use of Form ABS-15G. This form shall be used to comply with the requirements of Rule 15Ga-1 under the Exchange Act (17 CFR Ga-1). B. Events to be Reported and Time for Filing of Reports. Forms filed under Rule 15Ga-1. In accordance with Rule 15Ga-1, file the information required by Part I in accordance with Item 1.01, Item 1.02, or Item 1.03, as applicable. If the filing deadline for the information occurs on a Saturday, Sunday or holiday on which the Commission is not open for business, then the filing deadline shall be the first business day thereafter. C. Preparation of Report. This form is not to be used as a blank form to be filled in, but only as a guide in the preparation of the report on paper meeting the requirements of Rule 12b-12 (17 CFR b-12). The report shall contain the number and caption of the applicable item, but the text of such item may be omitted, provided the answers thereto are prepared in the manner specified in Rule 12b-13 (17 CFR b-13). All items that are not required to be answered in a particular report may be omitted and no reference thereto need be made in the report. All instructions should also be omitted. D. Signature and Filing of Report. 1. Forms filed under Rule 15Ga-1. Any form filed for the purpose of meeting the requirements in Rule 15Ga-1 must be signed by the senior officer in charge of securitization of the securitizer. 2. Copies of report. If paper filing is permitted, three complete copies of the report shall be filed with the Commission. INFORMATION TO BE INCLUDED IN THE REPORT REPRESENTATION AND WARRANTY INFORMATION Item 1.01 Initial Filing of Rule 15Ga-1 Representations and Warranties Disclosure Provide the disclosures required by Rule 15Ga-1 (17 CFR Ga-1) according to the filing requirements of Rule 15Ga-1(c)(1). Item 1.02 Periodic Filing of Rule 15Ga-1 Representations and Warranties Disclosure Provide the disclosures required by Rule 15Ga-1 (17 CFR Ga-1) according to the filing requirements of Rule 15Ga-1(c)(2). Item 1.03 Notice of Termination of Duty to File Reports under Rule 15Ga-1 If a securitizer terminates its reporting obligation pursuant to Rule 15Ga-1(c)(3), provide the date of the last payment on the last asset-backed security outstanding that was issued by or issued by an affiliate of the securitizer. 1 These instructions should not be filed with the Report. See General Instruction C. Preparation of Report.

9 [INSERT EXCEL TABLE EXAMPLE] SAMPLE TABLE NARRATIVES/FOOTNOTES FOR CONSIDERATION BY MUNICIPAL STUDENT LOAN ASSET-BACKED ISSUERS (PREPARED BY KUTAK ROCK LLP) SEC Rule 15Ga-1 Methodology Statement Example of Introductory Narrative XYZ Municipal Student Loan Asset-Backed Issuer is filing this report in compliance with SEC Rule 15Ga-1 (the Rule ). The following information is provided to assist the reader in interpreting such report. The term unavailable appearing in the table [above] indicates such information is unknown and not available to XYZ Municipal Student Loan Asset-Backed Issuer without unreasonable effort or expense. Examples of Description of Initial Report [IF THE MUNICIPAL STUDENT LOAN ASSET-BACKED ISSUER ISSUED BONDS DURING THE INITIAL REPORTING PERIOD] In accordance with paragraph (c)(1) of the Rule, XYZ Municipal Student Loan Asset-Backed Issuer [is filing] [filed] its initial report for the three-year period ending December 31, 2014 (the Initial Reporting Period ). Such report include[s][d] all trust indentures and resolutions (each an Indenture ) under which XYZ Municipal Student Loan Asset-Backed Issuer either issued asset-backed securities, as defined in the Rule ( Securities ) during the Initial Period, or had Securities outstanding during the Initial Period and include[s][d] all repurchase activities that occurred during the Initial Period that relate[d] to repurchase demands, regardless of whether such repurchase demands were made during or prior to the Initial Period. Examples of Description of Quarterly Reports [IF MUNICIPAL STUDENT LOAN ASSET-BACKED ISSUER IS EXCLUDING INDENTURES WITH NO REPURCHASE ACTIVITY FROM QUARTERLY REPORTS] In accordance with paragraph (c)(2) of the Rule, XYZ Municipal Student Loan Asset-Backed Issuer is filing a report on a quarterly basis approximately 45 days after the end of each calendar quarter. Such report includes only those Indentures under which XYZ Municipal Student Loan Asset-Backed Issuer either issued Securities during the quarter or had Securities outstanding at the end of the calendar quarter for which repurchase activity occurred during the calendar quarter that relates to repurchase demands, regardless of whether such repurchase demands were made during or prior to the calendar quarter. [IF MUNICIPAL STUDENT LOAN ASSET-BACKED ISSUER IS REPORTING ALL INDENTURES]

10 In accordance with paragraph (c)(2) of the Rule, XYZ Municipal Student Loan Asset-Backed Issuer is filing a report on a quarterly basis approximately 45 days after the end of each calendar quarter. Such report includes all Indentures under which XYZ Municipal Student Loan Asset- Backed Issuer either issued Securities during the quarter or had Securities outstanding at the end of the calendar quarter and includes all repurchase activities that occurred during the calendar quarter that relate to repurchase demands, regardless of whether such repurchase demands were made during the calendar quarter.

11 Name of Issuing Entity Check if Registered Name of Originator Total Assets in ABS by Originator EXAMPLE COMPLETED TABLE Assets That Were Subject of Demand Assets That Were Repurchased or Replaced Assets Pending Repurchase or Replacement (within cure period) Demand in Dispute Demand Withdrawn Demand Rejected (a) (b) (c) Asset Class: Student Loan Asset-Backed Notes (d) (e) (% of principal (f) (g) (h) (% of principal (i) (j) (k) (% of principal (l) (m) (n) (% of principal (o) (p) (q) (% of principal (r) (s) (t) (% of principal (u) (v) (w) (% of principal (x) Issuing Entity: XYZ Municipal SLAB Issuer, Indenture Dated 1/1/2005 Issuer 50 $ 5,000, % 0 $ - 0% 0 $ - 0% 0 $ - 0% 0 $ - 0% 0 $ - 0% 0 $ - 0% First State Bank 50 $ 5,000, % 0 $ - 0% 0 $ - 0% 0 $ - 0% 0 $ - 0% 0 $ - 0% 0 $ - 0% Second State Bank 50 $ 5,000, % 0 $ - 0% 0 $ - 0% 0 $ - 0% 0 $ - 0% 0 $ - 0% 0 $ - 0% Third State Bank 50 $ 5,000, % 2 $ 200, % 1 $ 100, % 1 $ 100, % 0 $ - 0% 0 $ - 0% 0 $ - 0% Fourth State Bank 50 $ 5,000, % 0 $ - 0% 0 $ - 0% 0 $ - 0% 0 $ - 0% 0 $ - 0% 0 $ - 0% Total 250 $ 25,000, % 2 $ 200, % 1 $ 100, % 1 $ 100, % 0 $ - 0% 0 $ - 0% 0 $ - 0% Issuing Entity: XYZ Municipal SLAB Issuer, Bond Resolution Dated 2/1/2013 Issuer 30 $ 3,000, % 0 $ - 0% 0 $ - 0% 0 $ - 0% 0 $ - 0% 0 $ - 0% 0 $ - 0% First State Bank 30 $ 3,000, % 0 $ - 0% 0 $ - 0% 0 $ - 0% 0 $ - 0% 0 $ - 0% 0 $ - 0% Second State Bank 30 $ 3,000, % 0 $ - 0% 0 $ - 0% 0 $ - 0% 0 $ - 0% 0 $ - 0% 0 $ - 0% Third State Bank 30 $ 3,000, % 0 $ - 0% 0 $ - 0% 0 $ - 0% 0 $ - 0% 0 $ - 0% 0 $ - 0% Total 120 $ 12,000, % 0 $ - 0% 0 $ - 0% 0 $ - 0% 0 $ - 0% 0 $ - 0% 0 $ - 0% Total Student Loan Asset- Backed Notes 370 $ 37,000, % 2 $ 200, % 1 $ 100, % 1 $ 100, % 0 $ - 0% 0 $ - 0% 0 $ - 0%