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Telephone Interpretation Manual Updated With Reg. AB Information 

The SEC's Division of Corporation Finance recently updated its telephone interpretation manual to include responses to inquiries about Regulation AB and related rules. The manual is a compilation of responses to telephone inquiries that was first developed for staff training purposes. The responses are intended as general guidance, according to the manual, and should not be relied upon as definitive.

The presentation of historical delinquency and loss information must be presented in 30 or 31 day increments, as applicable, through the point that assets are written off or charged off as uncollectible, according to the manual. Many issuers include information that is not required, such as information about a managed or total portfolio. The manual states that, since this information is not presented in response to a specific item requirement of Regulation AB, but instead under general principles of materiality, it may be provided in a manner other than that outlined in Item 1100(b).

Items 1101(d) and (g) provide three approaches for determining whether a pool asset is delinquent or nonperforming. In both definitions, the most restrictive of the approaches governs, according to the manual. In each definition, the second alternative provides a choice among three specified policies of the sponsor, the affiliated originator or the servicer. When choosing among the policies in choice two, the registrant does not have to choose the most restrictive of the policies.

The manual states that the definition of servicer in Regulation AB is principles-based, so an entity meets the definition if it is responsible for the management or collection of the pool assets or for making allocations or distributions to holders, regardless of its title.

Whether a party is considered a sponsor depends on the facts and circumstances of its actions. The manual notes that there are circumstances in which more than one originator acts as a sponsor, such as "rent-a-shelf" where more than one originator offers to sell the underlying assets to back the asset-backed securities.

An issuer must disclose information about any party, including outsource companies, that meet the principles-based definition of servicer and the 20% threshold test. The disclosure extends only to material information about the servicing function the party performs for the pool assets. The disclosure of a servicer's procedures should be limited to that which a reasonable investor would find material in considering an investment in the asset-backed securities and the servicing and administration of the pool assets and the asset-backed securities. The material disclosure should not be obscured with immaterial or technical data.

The 10% and 20% thresholds for disclosing certain information when pool assets are serviced by an unaffiliated servicer should be calculated as of the designated cut-off date for the transaction. The disclosure must be included in the registration statement. A change in the servicer for a particular function from what was disclosed in the initial registration statement must be disclosed if the new servicer is of the type described in Item 1108(a)(2). The issuer must disclose the change and information about the new services on Form 8-K within the time period allowed by that form, or under Item 8 of Form 10-D, as appropriate.

The servicer's financial condition must be disclosed to the extent that it could have a material impact on pool performance or the performance of the asset-backed securities. The type of disclosure that is required is dependent on the particular facts, but the financial statements of the servicer do not have to be disclosed unless it is necessary for the investor to understand the servicer's financial condition.

Historical delinquency information for a subject asset pool is always required under Item 1111(c). General principles of materiality govern any additional information, such as historical delinquency information for another asset group, that may be necessary to ensure that the disclosure is not misleading.

Material credit enhancements must be described under Item 1114. The manual advises that the underlying obligor's arrangements in connection with the original extension of loan level mortgage insurance, hazard insurance or homeowner's insurance would not be considered credit enhancements.

Under the 1933 Act rules, a registration fee is paid to register the offer and sale of asset-backed securities, some of which are backed by a collateral certificate or a special unit of beneficial interest. The offer and sale of the collateral certificate and the special unit of beneficial interest must also be registered. If they meet the requirements of rule 190(c), there is no additional registration fee.

If an issuer in a registered remarketing transaction has not previously updated its prospectus to include all of the updated information required by Form S-3, it must file and incorporate by reference a Form 8-K containing information about the pool assets or it must file a prospectus supplement or a post-effective amendment to update the prospectus.

A Form 10-K must include from each party participating in the servicing function a report regarding its assessment of compliance with the servicing criteria as of and for the period ending the fiscal year, unless the de minimus exception of rules 15d-18 or 13a-18 apply. The measurement for the de minimus threshold must include the servicing function for the entire period covered by the Form 10-K.

The Form 10-K should be signed by the depositor or, in the alternative, on behalf of the issuing entity by the servicer. If the servicer is signing and multiple servicers are involved, the master servicer must sign. A trustee that is a servicer may not sign a 1934 Act report for the depositor unless it is the master servicer.