The SEC Wants To Be Your Valentine

Monday, January 9, 2012 - 15:27

On February 14, 2012, Valentine’s Day, certain public and private companies will be required to file newly created Form ABS-15G with the Securities and Exchange Commission (the “SEC”). This new SEC filing requirement is mandated by Rule 15Ga-1 to the Securities Exchange Act of 1934, as amended, which was released by the SEC on January 20, 2011 to implement Section 943 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.  Rule 15Ga-1 was enacted in response to a perceived lack of responsiveness by securitizers to efforts by investors and trustees to undertake enforcement actions and to exercise remedies in respect of breaches of such representations and warranties.  

Sponsors and issuers of asset-backed securities should closely review Rule 15Ga-1, determine whether and to what extent disclosure is required, and begin to implement any system changes necessary to gather any data required to be disclosed. The following provides a brief summary of Rule 15Ga-1 and two checklists relating to the applicability of the February 14, 2012 filing requirement and future quarterly filing requirements.  

Summary

In general, Rule 15Ga-1 requires that a securitizer of an asset-backed security, for which the underlying transaction documents contain a covenant to repurchase or replace assets for breaches of representations or warranties, shall file Form ABS-15G with the SEC detailing, in tabular format, information regarding all assets securitized by such securitizer that were the subject of a demand to repurchase or replace for breaches of the representations and warranties for asset-backed securities held by non-affiliates during the applicable reporting period.

  • Securitizer is broadly defined and is either (A) an issuer of an asset-backed security or (B) 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.   Given the definition, there can be more than one securitizer for an asset-backed securities transaction. In general, Rule 15Ga-1 provides that if such securitizers are affiliates, filing by one securitizer excuses reporting by its affiliated securitizers.
  • Asset-backed security is very broadly defined for purposes of Rule 15Ga-1 and includes any 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 assets. Of special note, Rule 15Ga-1 makes clear that the term “asset-backed security” includes:  
  • CDOs, CLOs, GSE-issued or guaranteed securities, municipal ABS and any security determined by the SEC by rule to be an asset-backed security; and
  • registered and unregistered offerings, including those privately placed on the basis of or in reliance on Rule 144A or otherwise exempt from registration.
  • The information required to be included in tabular format on Form ABS-15G  must include the following:
  • Asset class
  • Issuing entity
  • Whether the asset-backed securities are registered
  • Names of originators
  • Total assets by originator (by number, dollar amount and percentage of pool)
  • Assets subject to demand (by number, dollar amount and percentage of pool)
  • Assets repurchased or replaced (by number, dollar amount and percentage of pool)
  • Assets pending repurchase or replacement (within cure period) (by number, dollar amount and percentage of pool)
  • Assets subject to demand that are in dispute (by number, dollar amount and percentage of pool)
  • Assets subject to demand not repurchased or replaced because demand withdrawn (by number, dollar amount and percentage of pool)
  • Assets subject to demand not repurchased or replaced because demand was rejected (by number, dollar amount and percentage of pool)
  • Aggregate data with respect to certain of the above data categories

In general, the securitizer is required to provide narrative disclosure (through the use of footnotes) to further explain the information presented in the table, as appropriate.  In certain cases, information can be omitted if the information is unknown or not reasonably available to the securitizer without unreasonable effort or expenses, provided that the securitizer provides narrative disclosure explaining such omission.

  • Rule 15Ga-1 does not define subject of a demand. However:
  • the SEC does make it clear that the disclosure should (subject to very limited exceptions) include not only demands made by the trustee (or other party with the right under the transaction documents to make a demand) but also investors; and
  • given that Rule 15Ga-1 applies only to transactions in which there is a repurchase or replacement provision in the transaction documents, a reasonable interpretation is that a demand requires a clear written request for enforcement of the related repurchase or replacement obligations in accordance with the related transaction documents.
  • Rule 15Ga-1 provides for two reporting periods, filing dates and the ability to suspend reporting.
  • The two reporting periods and related filing dates are as follows:
  • an initial three-year look-back reporting period ending December 31, 2011, with the initial Form ABS-15G to be filed no later than February 14, 2012 (the “Initial Filing Date”); and 
  • quarterly reporting periods thereafter, with Form ABS-15G to be filed no later than 45 days following the end of the related calendar quarter. 
  • it is important to note that the language triggering the initial filing requirement on the Initial Filing Date is different from the language relating to quarterly filing requirements. It is possible that a securitizer that is not obligated to make a filing on the Initial Filing Date would be required to make a quarterly filing. For example, a securitizer that (i) issued asset-backed securities (with Repurchase/Replacement Obligations) prior to 2009, which securities are outstanding and owned by non-affiliates on January 1, 2012 and (ii) did not issue any asset-backed securities during the three-year period ended December 31, 2011, would not be obligated to make the filing on the Initial Filing Date, but would be required to make quarterly filings starting with the calendar quarter ended March 31, 2012.
  • Suspension of Filing Requirements.
  • Where a securitizer has no repurchase or replacement demands during the three- year look-back period covered by Initial Filing Date filing (if required to be filed) or the prior calendar quarter, it may check a box on Form ABS-15G that permits it to suspend quarterly reporting until a demand is made.   
  • If Rule 15Ga-1 filings are suspended, the securitizer will still be required to make an annual Form 15G-1 filing within 45 days of the end of the calendar year confirming that there has been no demand activity.

Applicability Checklist For February 14, 2012 Filing Requirements   

  • Are you a securitizer of asset-backed securities?
  • Did you issue or organize and initiate any asset-backed securities between January 1, 2009 and December 31, 2011?
  • Do the underlying transaction documents contain a covenant to repurchase or replace assets for breaches of representations and warranties (“Repurchase/Replacement Obligations”)?
  • As of December 31, 2011, are your outstanding asset-backed securities (for which the underlying documents contain Repurchase/Replacement Obligations) held by non-affiliates?

If the answer to all four questions is affirmative, then Rule 15Ga-1 requires that a Form ABS-15G be filed by the Initial Filing Date, in respect of the period from January 1, 2009 through December 31, 2011, by the securitizer (or, if there is more than one affiliated securitizer, by one of the affiliated securitizers).

Applicability Checklist For Future Quarterly Filings  

  • Are you a securitizer of asset-backed securities?
  • Is one of the following true?
  • You issued or organized and initiated any asset-backed securities (where the underlying documents contain Repurchase/Replacement Obligations) during the prior calendar quarter.
  • Your outstanding asset-backed securities (where the underlying documents contain Repurchase/Replacement Obligations) are held by non-affiliates.

If the answer to both questions is affirmative and filing obligations have not been suspended for lack of demand activity, then Rule 15Ga-1 requires that a Form ABS-15G be filed within 45 days of the end of each quarter, by the securitizer (or, if there is more than one affiliated securitizer, by one of the affiliated securitizers).

Gilbert Liu, a Partner in Kramer Levin’s New York office, practices mainly in the area of securitization and structured finance. He represents issuers, underwriters, borrowers, lenders and service providers on private and public structured finance and securitization transactions involving a wide variety of asset classes. These include collateralized debt obligations, timeshare loans, commercial mortgage loans, home equity loans, residential mortgage loans, distressed assets, auto loans, government energy contract receivables, student loans, equipment leases, trademark and licensing rights, music royalties and municipal tax liens. Mr. Liu also serves on the board of directors and executive committee of Harlem RBI, a non-profit organization providing social, academic and athletic services to over 800 boys and girls in East Harlem, New York. Additionally, Mr. Liu is involved in pro bono matters for the DREAM Charter School, Long Term Care Community Coalition, Chinese American Health Foundation and the CAIPA Foundation.

Please email the author at gliu@kramerlevin.com with questions about this article.