regulation ab - a summary of the sec's new set of rules ...defining asset-backed securities in...

The SEC has adopted a new regulation,Regulation AB1 (the “Regulation”), thatsets forth the SEC’s ‘principles-based’ setof disclosure items for registered offeringsof asset-backed securities. In SECRelease Nos. 33-8518 and 34-50903 (the“Adopting Release”), available throughthe SEC’s web site at www.sec.gov, theSEC has promulgated amendments tothe Securities Act of 1933, as amended(the “Securities Act”) and the SecuritiesExchange Act of 1934, as amended (the“Exchange Act”) that contain new andamended rules and forms for registrationand ongoing reporting with respect toasset-backed securities offerings.Compliance with these new and amendedrules is required for a registered offeringof asset-backed securities commencingon or after December 31, 2005. thisAlert summarizes and discusses theserequirements. For purposes of this Alert,we have assumed basic familiarity withasset-backed and mortgage-backedsecurities, their structure and purpose,and the asset-backed and mortgage-backed market generally. For purposesof this Alert, when we refer to asset-backed securities, we intend to includemortgage-backed securities as well,unless otherwise specified.

General Overview

The final rules promulgated in theAdopting Release (the “ABS Rules”)

provide a comprehensive set of federalsecurities laws, rules and regulations forasset-backed securities. Previously,there was no such comprehensive set oflaws, but instead a myriad of no-actionletters and SEC staff positions. Many ofthese positions were communicatedthrough comment letters on specificregistration statements and not widelydisseminated, resulting in a body oflaws applicable to ABS that was morelike lore than law. In light of this, aprincipal goal of the SEC in adoptingthe ABS Rules was to provide clarityand transparency to the ABSregistration and reporting process.

The Adopting Release sets out therequirements of the new ABS Rulesunder five general categories: SecuritiesAct registration requirements,prospectus disclosure requirements,rules governing communications duringthe offering process, ongoing reportingrequirements under the Exchange Actand the transition period foreffectiveness of the rules. We willsummarize and discuss each of thesecategories, noting differences fromcurrent practice as well as changes fromthe proposed amendments issued by theSEC on May 3, 2004 (the “ProposedAmendments”),2 In general, theAdopting Release codifies current staffpositions that have been expressedthrough no-action letters and theregistration comment process as well as

Number 432 February 7, 2005

Client AlertLatham & Watkins Finance Department

“Regulation AB setsforth a new princi-ples-based set ofdisclosure itemsthat will form thebasis for disclosurein both SecuritiesAct registrationstatements andExchange Actreports for ABStransactions.”

Regulation AB - A Summary of the SEC'sNew Set of Rules and Regulations for Asset-Backed Securities

Latham & Watkins operates as a limited liability partnership worldwide with an affiliate in the United Kingdomand Italy, where the practice is conducted through an affiliated multinational partnership. © Copyright 2005Latham & Watkins. All Rights Reserved.

current industry practice, althoughcertain of the amendments representmaterial changes to current practice.

Securities Act RegistrationRequirements

Defining Asset-Backed SecuritiesIn adopting the ABS Rules, the SECbegan by amending the definition of“asset-backed security” to identifywhich securities and offerings arecovered by the new rules, and movingthat definition into Regulation AB formore general applicability (beyond itscurrent more limited applicability todetermining the use of Form S-3).3

The definition of asset-backed securities(“ABS”) that has been adopted in Item1101 (c)(1) of Regulation AB is the samebasic definition that has existed since1992, with one additional proviso withrespect to leases and a codification ofcertain other conditions andinterpretations that have developed incurrent practice through no-action letteradvice and the SEC comment process.Clarifying the 1992 definition, the SEChas specifically included lease-backedsecurities in the definition of ABS.Further the SEC has added theconditions currently applicable inpractice that (1) neither the depositornor the issuing entity be an investmentcompany under the InvestmentCompany Act of 1940, as amended (the“Investment Company Act”)4, (2) theactivities of the issuing entity be limitedto passive ownership of the pool ofassets, issuance of the ABS and otheractivities reasonably incidental thereto,(3) as of the cut-off date for the ABSoffering or, in the case of master trusts,the date loss, delinquency and otherrequired pool information is presentedin the prospectus (such date shall bereferred to herein as the “MeasurementDate”) charged-off or non-performingassets5 may not be part of the principalamount of the pool funded by the ABSoffering,6 (4) as of the MeasurementDate, total delinquent assets7 may not

comprise 50 percent or more of the assetpool,8 and (5) with respect to lease-backed ABS, the portion of thesecuritized pool balance attributable tothe residual value of the physicalproperty underlying the leases (in eachcase determined as of the MeasurementDate) may not constitute (x) 65 percent9

or more of the securitized pool balancefor motor vehicle leases, and (y) 50percent or more of the securitized poolbalance for all other leases.10

The last leg of the SEC’s definition ofABS provides clarifications andexceptions to what constitutes a“discrete pool of assets” as required bythe definition. In this regard, the SEChas codified the concept that multi-issuance vehicles, such as master trusts,that issue series of ABS backed by acommon pool continue to qualify as ABSdespite the “discrete pool of assets”requirement. For master trusts and othermulti-issuance vehicles, the SEC hasclarified that pool additions may bemade both to support additionalissuances and also to meet minimumpool requirements for existing securities.Further, the SEC has provided that pre-funding periods not exceeding one yearand pre-funding accounts meeting theamount limitations of the ABSdefinition11 will not cause an asset poolto fail to constitute a discrete pool andtherefore continue to fall within thedefinition of ABS. Finally, the SEC hasclarified that securities backed by poolassets not arising under revolvingaccounts but contemplating a revolvingperiod will qualify as ABS if theconditions specified in the definition aremet.12 For receivables and other financialassets that by their nature revolve, suchas credit cards, dealer floorplanfinancings and home equity lines ofcredit, there is no limit on the amount ofthe total asset pool that revolves orduration of the revolving period.

In adopting this definition, the SECspecifically considered and rejected thecomment that synthetic securitizationsbe included in the basic definition ofABS. The SEC in the Adopting Release

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Latham & Watkins | Client Alert

says that it does not intend thatsynthetic securities may not be offeredin a public offering, only that suchsecurities may not be registered underthis alternative regulatory regime forABS. Additional comment is soughtregarding synthetic securities andwhether a alternative scheme should beconsidered by these securities.

The ABS Registration Forms:Use and GuidanceThe Adopting Release requires that allregistered offerings of ABS beregistered on either Form S-1 or Form S-3. No new registration statement formhas been proposed or adopted. Form S-3is for use in connection with continuousor delayed offerings of investment gradeasset-backed securities sold in thefuture through one or more offerings ortakedowns of securities off a shelfregistration statement. Form S-1 will bethe form for all other offerings that meetthe definition of ABS but do not meet

the eligibility requirements for Form S-3use. In the future, Form S-11 will nolonger be used to register mortgage-backed securities, although the SEC hasprovided for grandfathering of existingshelf registrations on Form S-11.13 Inaddition to amendments related to FormS-11, the SEC has adopted amendmentsto Forms S-2, F-1, F-2 and F-3 toexclude their use for any offeringsmeeting the definition of ABS.

The SEC has adopted a new GeneralInstruction VI to Form S-1 that sets forthhow the form is to be prepared for ABSofferings. It includes the requirementsregarding who signs the registrationstatement and the menu of disclosurerequirements, substituted items fromRegulations AB and omitted items. Seethe discussion below under the heading“Prospectus Disclosure Requirements”for the specific requirements. Theapplicability of disclosure items for FormS-1 are as follows:



Disclosure for Form S-1 for Registered ABS Offerings

Existing Form Items Required if applicable

May be Omitted

Item 1. Forepart of Registration Statement and OutsideFront Cover Page of Prospectus.

•

Item 2. Inside Front and Outside Back Cover Pages ofProspectus.

•

Item 3. Summary Information, Risk Factors and Ratio ofEarnings to Fixed Charges.

•

Item 4. Use of Proceeds. •

Item 5. Determination of Offering Price. •

Item 6. Dilution. •

Item 7. Selling Security Holders. •

Item 8. Plan of Distribution. •

Item 9. Description of Securities to be Registered. •

Item 10. Interests of Named Experts and Counsel. •

The SEC has also adopted a newGeneral Instruction V to Form S-3 thatsets forth how that form is to beprepared for ABS offerings. Many non-ABS offerings using Form S-3 relyheavily on incorporation by reference ofExchange Act filings about the issuerand primarily describe only the currentsecurities offering. ABS offerings usingForm S-3, however, will need to contain

additional disclosure from RegulationAB about the pool assets, servicers,trustees, significant obligors, creditenhancers and others, and materialprovisions such as covenants anddefault triggers. These basic disclosureitems are contained in Items 1102-1120of Regulation AB. The applicability ofdisclosure items for Form S-3 are asfollows:



Existing Form Items Required if applicable

May be Omitted

Item 1. Forepart of Registration Statement and OutsideFront Cover Page of Prospectus.

•

Item 2. Inside Front and Outside Back Cover Pages ofProspectus.

•

Item 3. Summary Information, Risk Factors and Ratio ofEarnings to Fixed Charges.

•

Item 4. Use of Proceeds. •

Item 5. Determination of Offering Price. •

Item 6. Dilution. •

Disclosure for Form S-3 for Registered ABS Offerings

Item 11. Information with Respect to the Registrant. •

Item 12. Disclosure of Commission Position onIndemnification for Securities Act Liabilities.

•

Item 13. Other Expenses of Issuance and Distribution. •

Item 14. Indemnification of Directors and Officers. •

Item 15. Recent Sales of Unregistered Securities. •

Item 16. Exhibits and Financial Statement Schedules. •

Item 17. Undertakings. •

Additional Disclosure Items from Regulation AB

Items 1102 - 1120 of Regulation AB. •

In connection with Form S-3, the SECstates that it does not intend to changethe current practice of presentingdisclosure in the form of a baseprospectus containing generaldisclosure applicable to all the shelfofferings and a prospectus supplementcontaining disclosures for the specificsecurities offering or shelf takedown.14

The SEC provides some furtherguidance regarding the properdisclosure for the base prospectus andprospectus supplement, stating that thebase prospectus should probablyinclude risk factors that are applicableto the general type of transaction as awhole and the nature of the securities,general federal income taxconsequences, and a description of thetypes of offerings contemplated by theregistration statement.15 A takedown offthe shelf involving assets, structuralfeatures, credit enhancement or other

features that were not described in thebase prospectus generally requireseither a new registration statement or apost-effective amendment. It is notsufficient to simply describe these newitems in the final prospectus filed underRule 424 of the Securities Act.16 TheSEC has also stated its position in theGeneral Instruction to Form S-3 thatwhen it is intended that multiple assettypes may be securitized in discretepools under the same shelf registrationstatement, separate base prospectusesand forms of prospectus supplementsmust be included for each asset type. Itis not sufficient to merely identifyseveral alternative types of assets thatmay be securitized in one baseprospectus. A similar requirement ofseparate base prospectuses andprospectus supplements applies to shelfregistration statements intended tocover pools of foreign assets where the



Item 7. Selling Security Holders. •

Item 8. Plan of Distribution. •

Item 9. Description of Securities to be Registered. •

Item 10. Interests of Named Experts and Counsel. •

Item 11. Material Changes. •

Item 12. Incorporation of Certain Information by Reference. •

Item 13. Disclosure of Commission Position onIndemnification for Securities Act Liabilities.

•

Item 14. Other Expenses of Issuance and Distribution. •

Item 15. Indemnification of Directors and Officers. •

Item 16. Exhibits. •

Item 17. Undertakings. •


Items 1102 - 1120 of Regulation AB. •

assets originate in separate countries orthe property securing the pool of assetsis located in separate countries.17 As afinal note, the SEC reiterates its positionthat disclosures in prospectussupplements regarding the transactionsmay supplement or enhance disclosuresin the base prospectus, but should notcontradict it. As such, language such as"Except as otherwise provided in theprospectus supplement" may permitsome supplementing or modifying ofterms from the base, but may not beused to provide the ability to add assettypes or structural features in atakedown that were not otherwisecontemplated by and described in thebase prospectus.

Form S-3 EligibilityThe ABS Rules contain specificconditions to eligibility of an ABSoffering for use of the Form S-3 shelfregistration statement. Such eligibility isdetermined at the time of initial filing ofthe registration statement. First, if thedepositor or any affiliate of the depositoris, or was at any time during the twelvecalendar months and any portion of amonth immediately preceding the filingof a registration statement on Form S-3,subject to the requirements of Section12 or 15(d) of the Exchange Act withrespect to a class of ABS involving thesame asset class as that covered by theregistration statement on Form S-3, suchdepositor, its affiliates and each suchissuing entity must have filed allmaterial required to be filed regardingsuch ABS pursuant to Section 13, 14 or15(d) of the Exchange Act for suchtwelve month period (or such shorterperiod that each such entity wasrequired to file such materials) and suchfilings must have been filed in a timelymanner (other than reports related tocertain Items of Form 8-K).18 Excludedfrom this eligibility condition are anyrequired filings relating to ABS of anissuing entity previously established byan affiliated depositor that became anaffiliate as a result of a businesscombination transaction during theperiod specified in the preceding

sentence and that were required to befiled prior to the business combination.The SEC felt strongly about linkingForm S-3 eligibility to Exchange Actcompliance as an important means ofencouraging such compliance. The SECtook this opportunity to criticize ABSissuers for their performance incomplying with Exchange Act reportingby stating in the Adopting Release that:

“Compliance with Exchange Actreporting by ABS issuers under theexisting modified reporting no-actionletters has been unacceptable. Whilethis may be partially attributable to alack of widely understood requirementsdue to reduced transparency in thecurrent process, which these final rulesare intended to help remedy, theconcerns in this area are more broad-based than minor inadvertent orunintentional failures to file. Instead,reporting issues in the ABS marketinclude widespread instances ofuntimely, deficient and sometimes evencomplete lapses in reporting.”19

The second condition for Form S-3eligibility is that the ABS must be rated“investment grade” by a nationallyrecognized statistical rating organizationat the time of offer and sale to thepublic. Third, delinquent assets (asdefined previously under footnote 6)may not constitute 20 percent or more,as measured by dollar volume, of theasset pool. Fourth, for securities backedby leases other than motor vehicleleases, the portion of the securitizedpool balance attributable to residualvalues may not constitute 20 percent ormore, as measured by dollar volume.

The SEC has modified the proposedpenalty of loss of Form S-3 eligibility forfailure to comply with Exchange Actreporting obligations so that it no longerapplies to transaction sponsors, whoargued that they may have no controlover future reporting for a transaction.However, for sponsors that act throughone of more affiliated depositors, thepenalty may still result in significantdrawbacks. First, the ability to accessthe market on a quick or timely basis



may be significantly hindered by theinability to have an effective shelfregistration on Form S-3. Second, noABS informational and computationalmaterials may be used or incorporatedby reference.

Depositor As “Issuer” ForPurposes of the RegistrationStatement and the Securities ActUnder newly promulgated SecuritiesAct Rule 191, the SEC clarifies that forABS offerings, the depositor of assetsinto the issuing entity, acting solely inits capacity as depositor to the issuingentity, is the “issuer” of the ABS forpurposes of the Securities Act. A similarrule, Rule 3b-19, was also adopted forpurposes of the Exchange Act.20 For ABSwhere there is no intermediate transferfrom the sponsor to a depositor prior tothe transfer to the issuing entity, thesponsor is the “depositor” for purposesof Rule 191 and the Securities Act. Therules specify that a person acting in itscapacity as depositor for the issuingentity of ABS is a different “issuer” fromthat same person acting as a depositorfor any other issuing entity or forpurposes of that person’s own securities.As a result, exemptions from registrationthat may be applicable to the depositor’sown securities, are not applicable to theABS21 and conversely, a person’sreporting history on its own securitiesdoes not affect Form S-3 eligibility withrespect to its ABS. RegistrationStatements on Forms S-1 and S-3 mustbe signed by the depositor, thedepositor’s principal executive officers,principal financial officers or principalaccounting officers, and by at least amajority of the depositor’s board ofdirectors.

ABS sponsors that deposit assets directlyinto the ABS issuing entities may wantto consider the impact of these rules andwhether it may be beneficial from acorporate management perspective tocreate an intermediate depositor entityto act as “depositor” for the purposes ofthese rules. Further, given the impact ofSarbanes-Oxley and required

certifications, moving responsibility andresulting liability to an intermediatespecial purpose entity acting asdepositor for the ABS program, with itsown board of directors and officers, maybe desirable from a corporateresponsibility and risk managementperspective.

Application to Foreign Issuers orForeign Financial AssetsThe growth of securitizations by foreignissuers sold into the US has developedrapidly and prompted the SEC toinclude such offerings in the currentrulemaking.22 The SEC determined notto treat foreign ABS offerings differentlythan domestic US ABS offerings.Foreign ABS offerings must use thesame Forms S-1 and S-3, as applicable;they are subject to the same disclosurerequirements of Regulation AB (withone exception set forth below); foreignissuers that are eligible for Form S-3 useare also eligible for the rules regardinguse of ABS informational andcomputational materials and ABSresearch reports described in this memo;and once registered, foreign ABS aresubject to the same Exchange Actreporting requirements.

To address additional disclosureconcerns regarding foreign ABS, such asdiffering legal and regulatory regimesaffecting the ABS, Regulation ABcontains an additional GeneralInstruction (Item 1100(e)) requiring thatif an ABS offering is issued by a foreignissuer, backed by foreign assets, orcredit enhanced or otherwise supportedby a foreign entity, then the prospectusmust describe any pertinentgovernmental, legal or regulatory oradministrative matters and anypertinent tax matters, exchangecontrols, currency restrictions or othereconomic, fiscal, monetary or potentialfactors in the applicable homejurisdiction that could materially affectpayments on, the performance of orother matters affecting or relating to, theassets contained in the pool or the ABSthemselves.



Rules Related to Market Making TransactionsUnder the new rules, registration anddelivery of a current prospectus when abroker-dealer affiliated with an issuerengages in market-making transactionsis no longer required. The SEC waspersuaded by industry comment on thisrequirement in connection with theProposed Amendments. The SEC notesthat prospectuses must nonetheless bekept evergreen or updated where theyrelate to a delayed or continuous sellingshareholder offering, a registeredremarketing transaction or a re-securitization of ABS where theunderlying ABS constitutes a“significant obligor.”

Prospectus DisclosureRequirements

GeneralRegulation AB sets forth a newprinciples-based set of disclosure itemsthat will form the basis for disclosure inboth Securities Act registrationstatements and Exchange Act reports forABS transactions. In adopting thisprinciples-based approach, the SEC’sobjective was to provide an effectiveframework for disclosure applicable toexisting ABS asset classes as well as anynew asset classes that may emerge inthe future. Existing disclosurerequirements in the SEC’s forms did notelicit the information material to ABSofferings, and no codification existed ofthe informal requirements that had beenadopted for ABS. The SEC promulgatedRegulation AB to address such concernsand increase transparency. In addition,the Adopting Release identifiessubstantial additional disclosurerequirements for ABS transactions,citing developments in the market andevolving standards of materiality.However, the SEC emphasizes thatmateriality of information to investorswith respect to a particular ABStransaction and a specific asset poolshould ultimately be assessed byissuers.

Transaction PartiesRecognizing that, unlike corporateissuances, ABS transactions may involvenumerous transaction parties who eachprovide particular services or functions,the SEC has included in Regulation ABspecific definitions for these transactionsparties and disclosure requirements thatare tailored to each.

SponsorRegulation AB adopts the proposeddefinition of “sponsor”23 as “the personwho organizes and initiates an asset-backed securities transaction by sellingor transferring assets, either directly orindirectly, including through an affiliate,to the issuing entity.”24 In response tocomments that the definition of “sponsor”could be interpreted to relate to morethan one party in an ABS transaction,the Adopting Release clarifies that thedefinition should not be construedbeyond its plain language and by wayof example offers that in aggregator orconsolidator transactions where a sponsoracquires loans from other unaffiliatedsellers prior to a securitization, each ofthe underlying sellers would not beconsidered a “sponsor.”

Item 1104 of Regulation AB contains thespecific disclosure requirements for asponsor. These include basic identifyinginformation as well as a description ofthe sponsor’s securitization program.Specific requirements include:

• A general discussion of the sponsor’sexperience in and overall proceduresfor originating or acquiring andsecuritizing assets of the type to beincluded in a given transaction

• A description of the sponsor’s materialroles and responsibilities in itssecuritization program

• Information about whether thesponsor or an affiliate is responsiblefor originating, acquiring, pooling andservicing the pool assets and thesponsor’s participation in structuringthe transaction

These disclosures should includeinformation about underwriting criteria,credit review processes, servicing



policies and procedures and anyoutsourcing arrangements, among otherthings; information about the sponsor’sportfolio of assets of the type to besecuritized (including static poolinformation, as discussed below, for theoverall portfolio or prior securitizedpools) and other information or factorsrelated to the sponsor that may bematerial to an analysis of the originationor performance of the pool assets.Additionally, sponsor disclosures shouldidentify whether any priorsecuritizations organized by the sponsorhave experienced a default or earlyamortization event.

DepositorThe “depositor” is defined as the person“who receives or purchases andtransfers or sells the pool assets to theissuing entity”25 in an ABS transaction.The sponsor may also be treated as thedepositor if there is no intermediatetransfer of assets from a sponsor to theissuing entity. Item 1106 of RegulationAB sets out the disclosure requirementsfor the depositor and, if the depositor isnot the same entity as the sponsor,requires disclosures similar to thoserequired for the sponsor and thesponsor’s securitization programpursuant to Item 1104. Disclosures mustalso include information relating to theownership structure of the depositor andthe general character of any activities ofthe depositor other than securitizingassets. It should also describe anycontinuing duties the depositor willhave after issuance of the ABS.

Issuing Entity and Transfer of Asset PoolRegulation AB defines “issuing entity”as “the trust or other entity created atthe direction of the sponsor or depositorthat owns or holds the pool assets and inwhose name the asset-backed securitiessupported or serviced by the pool assetsare issued”.26 Pursuant to Item 1107,disclosure about the issuing entity mustinclude, among other things, adescription of:

• The nature of the issuing entity

• Its permissible activities andrestrictions on activities

• Any specific discretionary activitieswith regard to the administration ofthe asset pool or ABS

• Any assets owned or to be owned bythe issuing entity, apart from poolassets, as well as liabilities of theissuing entity, apart from the ABS

• Details on the sale or transfer of poolassets to the issuing entity as well asthe creation (and perfection andpriority status) of any securityinterests

• Expenses incurred in connection withthe selection and acquisition of thepool assets

• If the pool assets are securities, asdefined under the Securities Act, themarket price of the securities and thebasis on which the market price wasdetermined27

To the extent material, additionalinformation that should be disclosedincludes whether any security interestsgranted in connection with thetransaction are perfected, maintainedand enforced, whether bankruptcy,receivership or similar proceedings withrespect to the issuing entity can occurand whether, in such event, the assets ofthe issuing entity can become part ofthe bankruptcy estate or subject tocontrol of a third party. The governingdocuments of the issuing entity andmaterial agreements related to the ABSmust be filed as exhibits to theregistration statement.

ServicersRecognizing that multiple parties in agiven ABS transaction may performvarious servicing functions and that therole of a servicer is not always limited toadministration and collection of poolassets, the SEC sought to adopt adefinition of “servicer” that captured allaspects of a servicer’s activities.Pursuant to the Adopting Release, the“servicer” is any person responsible forthe management or collection of thepool assets or making allocations ordistributions to holders of ABS.



Notwithstanding the foregoing, thedefinition does not include a trustee thatmakes allocations or distributions toholders of ABS based on informationreceived from a servicer.

Item 1108 requires informationregarding the entire servicing function,including a description of the roles,responsibilities and oversightrequirements of the entire servicingprocess and the parties involved. Eachmaster servicer, each affiliated servicer,each unaffiliated servicer (e.g., primaryservicer) that services 10 percent ormore of the pool assets and any othermaterial servicer responsible forcalculating or making distributions toholders of ABS, performing work-outs orforeclosures or other aspect of servicingupon which performance of the pool ismaterially dependent must beidentified. With respect to each suchservicer, provided, that in the case ofeach unaffiliated servicer, only if suchservicer services 20 percent or more ofthe pool assets, and to the extentmaterial, the following additionalinformation should also be disclosed:

• Information regarding a servicer’sexperience in servicing assets of anytype as well as a more detaileddiscussion of asset-specific servicingprocedures and experience

• The size, composition and growth ofthe servicer’s portfolio of servicedassets of the type included in thetransaction, any prior securitizationsinvolving the servicer that haveexperienced default, earlyamortization or other performancetriggering event due to servicing, theextent of outsourcing, or previousdisclosure of material noncompliancewith servicing criteria with respect toother securitizations involving theservicer

• Any material changes within the last3 years to the servicer’s policies orprocedures in the servicing function itwill perform in the current transactionfor assets of the same type

• Information regarding the servicer’sfinancial condition28

• A description of the material terms ofthe servicing agreement and theservicer’s duties with respect to atransaction, including how collectionson the assets will be maintained, anyadvancing provisions (including, tothe extent material, statisticalinformation regarding advanceactivity for the past 3 years)29, theservicer’s process for handlingdelinquencies, losses, bankruptciesand recoveries, the ability of aservicer to waive or modify any terms,fees, penalties or payments on theassets and the effect of doing so, anycustodial responsibilities and anylimitations on the servicer’s liabilityunder the transaction

• A description of the material termsregarding the servicer’s removal,replacement, resignation or transfer

TrusteesItem 1109 of the Regulation requiresbasic identifying information about atrustee as well as a description of thetrustee’s prior experience in serving astrustee for ABS transactions involvingsimilar pool assets, the trustee’s dutiesand responsibilities under the governingdocuments and under applicable law,any limitations on liability, anyindemnification provisions and removalor replacement provisions. To addressconcerns about the lack of transparencyregarding a trustee’s level of oversightin an ABS transaction, disclosureregarding the trustee should alsoinclude information about the extent towhich the trustee independently verifiesdistribution calculations, has access toand its activity in transaction accounts,compliance with transaction covenants,use of credit enhancement, addition,substitution or removal of pool assetsand underlying data used for suchdeterminations. Also required isdisclosure of any actions required by thetrustee, including notices to investors,rating agencies or other third partiesand the required percentage of a classor classes needed to cause the trustee totake action. If multiple trustees areinvolved in the transaction, a description



of the roles and responsibilities of eachtrustee must be disclosed.

OriginatorsFor those ABS transactions that involvepool assets that were not originated bythe sponsor, each originator, apart fromthe sponsor or its affiliates, that hasoriginated, or is expected to originate,10 percent or more of the pool assetsmust be identified. With respect to anyoriginator that has originated, or isexpected to originate, 20 percent ormore of such pool assets, additionalinformation relating to such originator’sasset origination program must bedisclosed, including, to the extentmaterial, information regarding the sizeand composition of the relatedoriginator’s origination portfolio, theoriginator’s experience with originatingthe asset type, underwriting criteria andcredit approval process and othermaterial information relating to theorigination program and an analysis ofthe performance of the pool assets,similar to the disclosure requirementsapplicable to the sponsor’s program.

Other Transaction PartiesTo the extent that an ABS transactioninvolves other parties in addition tothose mentioned above, informationregarding such party is required to theextent material regarding that party, itsrole, function and experience in relationto the transaction.

Static Pool InformationA significant change to existing practiceand no-action letter positions is the newrequirement in the ABS Rules relating todisclosure of static pool data30 materialto the transaction. The SEC notes theimportance of such information as avaluable tool in analyzing performanceand in assisting investors in makinginformed investment decisions.Significantly, the SEC reminds thosemaking a materiality determination thatthey consider the standard formateriality to be whether a reasonableinvestor would consider the information

to be important to an investmentdecision, and states that investorsuniformly informed them that theyconsider static pool information to meetthis test. Thus, there is very little roomfor issuers to conclude that static poolinformation in general is not material,and such determinations will be left tothe scope and presentation of such data.

In response to comments received to theProposed Amendments, the SEC madeseveral revisions to Item 1105 ofRegulation AB, to provide guidance onthe scope of information contemplatedby the ABS Rules, as well as to providealternative means to present theinformation.

For Amortizing Asset PoolsItem 1105 requires disclosure, to theextent material to the transaction, of:

• Static pool information regardingdelinquencies, cumulative losses andprepayments for prior securitizedpools of the same asset type by a“seasoned sponsor” (a sponsor thathas three years or more of experiencesecuritizing assets of that type)

• Static pool information regardingdelinquencies, cumulative losses andprepayments by vintage originationyear31 of the same asset type originatedor purchased, as applicable, by an“unseasoned sponsor” (a sponsor thathas less than three years ofexperience securitizing assets of thetype included in the ABS transaction)

The foregoing information is required tobe provided for a period of five years, orsuch shorter period of time as the sponsorhas been either securitizing assets of thesame asset type (in the case of seasonedsponsors) or making originations orpurchases (in the case of unseasonedsponsors). The information to bepresented should include delinquency,cumulative loss and prepayment datafor each prior securitized pool or vintageorigination year, as applicable, inperiodic increments (e.g., monthly orquarterly) over the life of the priorsecuritized pool or vintage originationyear. The most recent periodic



increment for the data must be as of adate no later than 135 days of the dateof first use of the prospectus. Theprospectus should also present summaryinformation for the originalcharacteristics32 of the prior securitizedpools or vintage origination years.

For Revolving Asset Master TrustsItem 1105 requires disclosure, to theextent material, of data regardingdelinquencies, cumulative losses,prepayments, payment rate, yield andstandardized credit scores or otherapplicable measure of obligor creditquality in separate increments (i.e., 12-month increments through the first fiveyears of the account’s life) based on thedate of origination of the pool assets.33

If the information that would otherwisebe required is not material, butalternative static pool information wouldprovide material disclosure, theprospectus should provide suchalternative information instead.Similarly, Item 1105 provides thatinformation regarding a party or partiesother than the sponsor may be providedin addition to or in lieu of suchinformation regarding the sponsor ifappropriate to provide materialdisclosure.34 In addition, otherexplanatory disclosure, includingdisclosure explaining the absence of anystatic pool information, may be provided.

Item 1105 further provides that (i) withrespect to information regarding priorsecuritized pools of the sponsor that donot include the currently offered pool,information regarding prior securitizedpools that were established beforeJanuary 1, 2006 and (ii) with respect toinformation regarding the currentlyoffered pool, information about the poolfor periods before January 1, 2006 shallnot be deemed to be a prospectus orpart of a prospectus for the ABS norshall such information be deemed to bepart of the registration statement for theABS offering.

If any of the information described inthe preceding paragraph that is to beprovided is unknown and not available

to the registrant without unreasonableeffort or expense, such information maybe omitted, provided the registrantprovides the information on the subjectit possesses or can acquire withoutunreasonable effort or expense, and theregistrant includes a statement in theprospectus showing that unreasonableeffort or expense would be involved inobtaining the omitted information.

Method of PresentationIn response to requests in commentletters for flexibility in the presentationof required static pool information, andrecognizing that advances intechnology, particularly the Internet,have greatly increased efficiencies inthe ability to gather, process, presentand analyze information, the ABS Rulesprovide issuers with alternatives forproviding the required information forinclusion in the prospectus.

The issuer could physically include theinformation in the prospectus or, forABS offerings on Form S-3, incorporatethe information by reference from a filedExchange Act report. Alternatively,static pool information may be posted onan Internet Web site,35 subject to thefollowing conditions:36

• The prospectus at effectivenessdiscloses the intention to provide theinformation through a Web site andthe final prospectus provides thespecific Internet address where theinformation is posted37

• The information is provided throughthe designated Web site, unrestrictedas to access and free of charge

• The information remains available onthe Web site for a period of not lessthan five years,38 with the date of anysubsequent update or change to theinformation clearly indicated on theWeb site39

• The registration statement containsan undertaking that the informationprovided through the specifiedInternet address is deemed to be apart of the prospectus included in theregistration statement for the asset-backed securities40



Pool Assets and Pool CompositionItem 1111 of Regulation AB requiresdisclosure of general informationregarding the asset pool, including abrief description of the asset type to besecuritized and a description of thematerial terms of the assets. In addition,the solicitation, credit-granting orunderwriting criteria used to originateor purchase the assets, the selectioncriteria for the asset pool, and the cut-offdate or similar date for establishing poolcomposition must be disclosed. Finally,the effects of any legal or regulatoryprovisions on origination, enforcementand servicing of the assets41 must bedescribed to the extent they maymaterially affect pool asset payment orperformance.

Statistical information, if material, is tobe presented in tabular or graphicalformat, and may include suchinformation as average balance,weighted average coupon, average ageand remaining term, average loan-to-value or similar ratio, and weightedaverage standardized credit score orother applicable measure of obligorcredit quality. The SEC recognized thatthe characteristics that are material willvary depending on the nature of thepool assets. Examples of illustrativecharacteristics in the disclosure iteminclude:

• Number of each type of pool assets• Original balance and outstanding

balance as of a designated cut-offdate

• Interest rate or rate of return,including type of interest rate if thepool includes different types, such asfixed and floating rates

• Capitalized or uncapitalized accruedinterest

• Age, maturity, remaining term,average life (based on differentprepayment assumptions), currentpayment/prepayment speeds andpool factors, as applicable

• Servicer distribution, if differentservicers service different pool assets

• If a loan or similar receivable:amortization period; loan purpose;

loan status; loan-to-value ratios anddebt service coverage ratios; and typeand/or use of underlying property,product or collateral

• If a receivable or other financial assetthat arises under a revolving account,such as a credit card receivable:monthly payment rate; maximumcredit lines; average account balance;yield percentages; type of asset;finance charges, fees and otherincome earned; balance reductionsgranted for refunds, returns,fraudulent charges or other reasons;and percentage of full-balance andminimum payments made

• Whether the pool asset is secured orunsecured, and if secured, the type(s)of collateral

• Billing and payment procedures,including frequency of payment,payment options, fees, charges andorigination or payment incentives

• Information about the originationchannel and origination process forthe pool assets, such as originatorinformation (and how acquired) andlevel of origination documentationrequired, as applicable

In addition to the above, the ABS Rulesrequire the disclosure of standardizedcredit scores of obligors and otherinformation regarding obligor creditquality. Furthermore, disclosure aboutthe geographic distribution of the poolassets, such as by state or other materialgeographic region, is required if 10percent or more of the pool assets are orwill be located in any one state or othergeographic region, as well as anyinformation regarding any economic orother factors specific to such state orregion that may materially impact thepool assets or pool asset cash flows.

Consistent with existing practice, theABS Rules require that delinquency andloss information for the pool bepresented in 30 or 31 day increments, asapplicable, beginning at least withassets that are 30 or 31 days delinquent,as applicable, through the point thatassets are written off or charged off asuncollectible. Such information is to be



presented at a minimum by number ofaccounts and dollar amount. Disclosurealso will be required on howdelinquencies, charge-offs anduncollectible accounts are defined ordetermined, addressing the effect of anygrace period, re-aging, restructure,partial payments considered current orother practices on delinquencyexperience.

The ABS Rules provide for a separatelist of disclosure items for commercialmortgage backed securities, to theextent material:

• Location and present use of eachmortgaged property

• Net operating income and net cashflow information, as well as thecomponents of such items, for eachmortgaged property

• Current occupancy rates for eachmortgaged property

• Identity, square feet occupied by andlease expiration dates for the threelargest tenants at each mortgagedproperty

• The nature and amount of all othermaterial mortgages, liens orencumbrances against such propertiesand their priority

In addition, the following information isto be provided for each commercialmortgage that represents, by dollarvalue, 10 percent or more of the assetpool, as measured as of the cut-off date:

• Proposed renovation, improvement ordevelopment programs

• Competitive conditions• Management of the properties,

historical occupancy rates andproperty uses

• Further information about materialtenants and lease terms

Sources of Pool Cash FlowThe ABS Rules require disclosure of thespecific sources of funds42 and their uses,including, if applicable, the relativeamount and percentage of funds thatare to be derived from each source. Anyassumptions, data, models andmethodology used to derive such

amounts also must be described. If aportion of the securitized pool balance isattributable to the residual values of thephysical property underlying the assetssecuring the ABS, the disclosure mustinclude information on how residualvalues are estimated and derived,statistical information regardingestimated residual values and historicalstatistics on turn-in rates and residualvalue realization rates. Information alsowill be required regarding the mannerand process in which residual values areto be realized, and of the effects if notenough proceeds are received from therealization of residual values.

Changes to the Asset PoolMore detailed disclosures on when andhow the composition of an asset poolmay change, such as through aprefunding or revolving period, arerequired by the ABS Rules. Suchdisclosure includes:

• The term or duration of anyprefunding or revolving period

• Aggregate amounts and percentagesinvolved in the prefunding orrevolving period, if applicable

• Triggers that would limit or terminatesuch periods

• When and how new pool assets maybe added, removed or substituted,and the acquisition or underwritingcriteria for additional pool assets, andthe party that makes determinationson such changes

• Any minimum requirements to add orremove pool assets

• Temporary investment of fundspending use

• Whether, and if so, how, investors willbe notified of any changes to theasset pool

Transaction StructureWhile Item 202 of Regulation S-K wouldcontinue to provide the core disclosurerequirements for describing offeredsecurities, Item 1113 of Regulation ABrequires disclosure of additional specificfactors relating to ABS. Current marketpractice is to include many of the



disclosure items set out in Item 1113.Specified disclosure items in Item 1113relating to the ABS and transactionstructure include:

• The types or categories of securitiesthat may be offered, such as interest-weighted or principal-weightedclasses, planned amortization orcompanion classes or residual orsubordinated interests

• The flow of funds for the transaction,including payment allocation andpriority structure

• Description of the interest rate or rateof return on the ABS and how suchrate is determined and howfrequently it will be determined

• Amortization or principal distributionschedules

• Denominations in which the ABS maybe issued

• Any changes to the transactionstructure that would be triggeredupon a default or event of default

• Any liquidation, amortization,performance or similar triggers orevents and consequences if suchevents occur

• Whether the servicer or other party isrequired to provide periodic evidenceof the absence of a default or ofcompliance with the terms oftransaction documents

• Overcollateralization orundercollateralization figures

• Any provisions contained in othersecurities that could result in a cross-default or cross-collateralization

• Minimum standards, restrictions orsuitability requirements regardingpurchasing, owning or transferringthe securities

• Security holder vote requirements toamend transaction documents and theallocation of voting rights amongsecurity holders

A new disclosure requirement underItem 1113 is that a separate table mustbe included itemizing all of the fees andexpenses to be paid or payable out ofthe cash flows of the transaction. Thegeneral purpose of the fees andexpenses must be set forth as well asthe party receiving such amounts, the

source of funds and the distributionpriority of the fees and expenses. Ifapplicable, the formula used to determinesuch fees and expenses must beprovided. Additional informationnecessary to understand the fees andexpenses, such as any restrictions orlimits or potential changes in fees orexpenses should be presented with thetable.

Item 1113 further requires disclosurerelating to the frequency of distributiondates and collection periods and howcash held pending distribution is heldand invested, including how long thecash is held prior to distribution tosecurity holders and by whom.Disclosure relating to excess cash flowsmust include: (i) a description of thedisposition of residual or excess cashflows as well as identification of theowner of any residual or retainedinterests to the cash flows, (ii) anyrequirements to maintain a minimumamount of excess cash flow or spreadfrom, or retained interest in, thetransaction and any consequences to thetransaction structure if such requirementswere not met and (iii) to the extentmaterial, any features or arrangementsto facilitate a securitization of the excesscash flow or retained interest from thetransaction. The owner of any residualor retained interest must be identifiedonly if such person is affiliated with thesponsor, depositor, issuing entity or anyentity identified in Item 1119(a) of theRegulation or if such person has rightsthat may alter the transaction structurebeyond receipt of residual or excesscash flows.

Descriptive information about anyoptional or mandatory redemption ortermination provisions must be includedin the disclosure. In particular, the titleof any class of securities with anoptional redemption or terminationfeature that may be exercised when 25percent or more of the original principalbalance of the pool assets is stilloutstanding must include the word“callable”. In the case of a master trust,however, a title of a class of securitiesmust include the word “callable” when



an optional redemption or terminationfeature may be exercised when 25percent or more of the original principalbalance of the particular series in whichthe class was issued is still outstanding.

Any transaction involving a master truststructure must provide additionalinformation, to the extent material,regarding additional securities alreadyoutstanding or any securities that maybe issued in the future that are backedby the same pool. Such informationshould include:

• The relative priority of suchadditional securities to the securitiesbeing offered and rights to theunderlying pool assets and their cashflows

• Allocation of cash flow from the assetpool and any expenses or lossesamong the various series or classes

• Terms under which such additionalseries or classes may be issued andpool assets increased or changed

• The terms of any security holderapproval or notification of suchadditional securities

• Which party has the authority todetermine whether such additionalsecurities may be issued

Finally, Item 1113 requires disclosureregarding prepayment, maturity andyield considerations that may bematerial to ABS transactions.Information that should be disclosedinclude any models, including materialassumptions and limitations, used as ameans to identify cash flow patterns, adescription to the extent material of thedegree to which each class of securitiesis sensitive to changes in the rate ofpayment on the pool assets and theconsequences of such changing rate ofpayment and a description of anyspecial allocations of prepayment risksamong the classes of securities andwhether any class protects other classesfrom the effects of the uncertain timingof cash flow.

Significant ObligorsConsistent with current practice, theRegulation adopts detailed disclosure

requirements, including a requirementto provide financial information, withrespect to significant obligors in an ABStransaction. The Release defines“significant obligor” as:

• An obligor or a group of affiliatedobligors on any pool asset or group ofpool assets if such pool asset or groupof pool assets represents 10 percent ormore of the asset pool

• A single property or group of relatedproperties securing a pool asset or agroup of pool assets if such pool assetor group of pool assets represents 10percent or more of the asset pool

• A lessee or group of affiliated lesseesif the related lease or group of leasesrepresents 10 percent or more of theasset pool

With respect to such significant obligors,descriptive information is requiredincluding the identity of the significantobligor, its organizational form and thegeneral character of its business, thenature of the concentration of poolassets with the significant obligor, thematerial terms of the pool assets and theagreements with the significant obligorinvolving the pool assets.

Pursuant to Item 1112, different levels offinancial information about a significantobligor are required depending on theconcentration:

• If the pool assets relating to asignificant obligor represent 10percent or more, but less than 20percent, of the asset pool, thenselected financial data as required byItem 301 of Regulation S-K for thesignificant obligor is required.Notwithstanding the foregoing, theRegulation specifically states that inthe case of a single property or groupof related properties securing a poolasset or a group of pool assets, if suchpool asset or group of pool assetsrepresents 10 percent or more of theasset pool, only net operating incomefor the most recent fiscal year andinterim period is required

• If pool assets relating to a significantobligor represent 20 percent or moreof the asset pool, audited financial



statements meeting the requirementsof Regulation S-X are required.43

The instructions to Item 1112 clarify thatfinancial information is not required ifthe obligations of the significant obligoras they relate to the pool assets areeither backed by (i) the full faith andcredit of the United States or (ii) the fullfaith and credit of a foreign governmentif the pool assets are investment gradesecurities. The instructions further statethat if the significant obligor is an asset-backed issuer and the pool assetsrelating to the significant obligor areasset-backed securities, rather thanproviding financial information, theinformation required by Items 1104through 1115, 1117 and 1119 ofRegulation AB should instead beprovided in connection with aregistration statement or prospectus. Inthe case of an Exchange Act report onForm 10-K or Form 10-D, theinformation required by GeneralInstruction J of Form 10-K regardingsuch ABS for the period for which thelast Form 10-K of the ABS was due (orwould have been due if such ABS arenot subject to Exchange Act reporting)should be included in lieu of financialinformation required by Item 1112.

Credit Enhancement and Other SupportItem 1114 of the Regulation requiresdescriptive information, to the extentmaterial, of the manner in which anyenhancement or support mechanism isdesigned to affect or ensure timelypayment of the ABS. Note that Item1114 only includes derivativeinstruments whose primary purpose is toprovide credit enhancement related topool assets or the ABS. Derivatives thatare used to alter the paymentcharacteristics of the cashflows from theissuing entity and whose primarypurpose is not to provide creditenhancement related to the pool assetsor the ABS (e.g., interest rate andcurrency swaps) are covered under Item1115. Disclosure must include adescription of the material terms of theenhancement or support, including any

limits on the timing or amount of theenhancement or support or anyconditions that must be met before theenhancement or support can beaccessed and any provisions regardingsubstitution of the enhancement orsupport.

As with significant obligors, if any entityor group of affiliated entities providingenhancement or other support is liableor contingently liable to providepayments representing 10 percent ormore of the cash flow supporting anyoffered class of ABS, detailed disclosureincluding their identity and generalinformation about their business isrequired. Financial data required byItem 301 of Regulation S-K will berequired only with respect to any entityor group of affiliated entities providingenhancement or support that are liableor contingently liable to providepayments representing 10 percent ormore, but less than 20 percent of thecash flow supporting any offered classof ABS. If any entity or group ofaffiliated entities providingenhancement or support is liable orcontingently liable to provide paymentsrepresenting 20 percent or more of thecash flow supporting any offered classof the ABS, audited financial statementsmeeting the requirements of RegulationS-X must be provided.44 Certainexceptions apply including if theobligations of the enhancement providerare backed by the full faith and credit ofthe United States or a foreigngovernment, if the pool assets arestudent loans originated under theFederal Family Education Loan Programor if the enhancement provider is aforeign business.

For derivatives (e.g., interest rate andcurrency swaps) that are used to alterthe payment characteristics of thecashflows from the issuing entity andwhose primary purpose is not to providecredit enhancement related to the poolassets or the ABS, Item 1115 requiresbasic identifying information about thederivative counterparty as wellinformation relating to the generalcharacter of its business, material terms



of the instrument and provisionsregarding substitution of the instrument.In response to comments on theProposed Amendments, the SEC hasadopted a more market-based approachto materiality for derivatives than theapproach originally proposed. Under theAdopting Release, the significance of aderivative is based on a reasonablegood-faith estimate of maximumprobable exposure. In most instances,ordinary course interest rate andcurrency swaps are not expected tomeet the disclosure thresholds underthis standard, which would requiredisclosure of counterparty information ifsuch exposure represented 10 percent ormore of the aggregate principal balanceof pool assets. If such significancepercentage is at least 10 percent but lessthan 20 percent, selected financial datarequired by Item 301 of Regulation S-Kmust be provided and in cases wherethe significance percentage is 20percent or more, audited financialstatements meeting the requirements ofRegulation S-X are required.

Other Basic Disclosure Items

Tax MattersConsistent with existing practice, Item1116 of the Regulation requires a briefsummary of the tax aspects of an ABStransaction, including disclosure relatingto the tax treatment of the ABStransaction under federal income taxlaws, the material federal income taxconsequences of purchasing, owningand selling the ABS and the substanceof the tax opinion, includingidentification of the materialconsequences upon which counsel hasnot been asked, or is unable, to opine.

Legal ProceedingsItem 1117 of the Regulation requires abrief description of any legalproceedings pending against thesponsor, depositor, trustee, issuingentity, servicer meeting the thresholds ofItem 1108(a)(3) of the Regulation or 20percent or more originator, or of whichany property of the foregoing is the

subject, that is material to securityholders. Similar information is alsorequired as to any proceedings knownto be contemplated by governmentalauthorities.

Affiliations and Certain Relationships andRelated TransactionsThe Regulation adopts, as proposed,Item 1119 and requires a description, ifapplicable, of how the sponsor,depositor or issuing entity is an affiliateof any of the following parties (and ifmaterial, how any of the following areaffiliates of any of the other followingparties):

• Servicer contemplated by Item1108(a)(3) of the Regulation;

• Trustee• Originator contemplated by Item 1110

of the Regulation• Significant obligor contemplated by

Item 1112 of the Regulation• Enhancement or support provider

contemplated by Items 1114 or 1115of the Regulation

• Any other material parties related tothe ABS contemplated by Item1100(d)(1) of the Regulation

This disclosure item also requires, to theextent material, a description of thegeneral character of any businessrelationship, agreement, arrangement,transaction or understanding that isentered into outside the ordinary courseof business or is on terms other thanwould be obtained in an arm’s lengthtransaction with an unrelated thirdparty, apart from the ABS transaction,between the sponsor, depositor orissuing entity and any of the partieslisted above that currently exists or thatexisted during the past two years. Theinstruction to this item specifically statesthat only information that is material toan investor’s understanding of the ABSis required.

RatingsItem 1120 of the Regulation codifiescurrent market practice by requiring (i)disclosure of whether the issuance orsale of any class of certificates is



conditioned on the assignment of aminimum rating by one or more ratingagencies and (ii) a description regardingany arrangements to have such ratingsmonitored while the ABS areoutstanding.

Reports and Additional InformationGiven that on-going reporting isessential to an understanding of an ABStransaction’s performance and relatedinvestment decisions, the Regulationadopts Item 1118, which requires adescription of the reports or otherdocuments required under thetransaction agreements, the informationincluded, the schedule and manner ofdistribution and identification of whowill prepare and provide such reports.Item 1118 also requires a statement asto whether reports will be available on aweb site and whether other reports tosecurity holders or information aboutthe ABS and filings will be madeavailable on the web site. If such filingsand other reports will not be availablevia a web site, the reasons why they willnot, and whether a party to thetransaction will voluntarily provideelectronic or paper copies of the filingsand other reports free of charge uponrequest, must be disclosed. The Releasemakes clear that the new disclosurerequirement does not separately createor otherwise affect any duty to updateprior statements.

Alternatives to Present Third PartyFinancial InformationAs discussed above, certain financialinformation is required regardingsignificant obligors and significantcredit enhancement parties. TheRegulation codifies current practice, asdeveloped through several no-actionletters and interpretations by the SEC,and permits alternative methods topresent or refer to such information if itexists in other SEC filings of the thirdparty. Incorporation by reference ofrequired financial information of anyenhancement provider from itsExchange Act reports (or the entity that

consolidates such party) is permissible,provided that four conditions are met:

• The third party or entity thatconsolidates the third party in itsfinancial statements is subject to theExchange Act reporting requirements

• The third party or entity thatconsolidates the third party in itsfinancial statements is current with itsExchange Act reporting for the pasttwelve months, or such shorter periodthat it has been required to filereports

• The reports to be incorporated byreference include (or properlyincorporate by reference) thefinancial statements of the third party

• If incorporated by reference into aprospectus or registration statement,the prospectus also states that alldocuments subsequently filed by suchthird party, or the entity thatconsolidates the third party, prior tothe termination of the offering alsowill be deemed to be incorporated byreference into the prospectus

Significantly, because the definition ofasset-backed security has beenexpanded to registered offerings onForm S-1, the Regulation as adoptedalso permits incorporation by referenceof third party financial information forABS offerings registered on Form S-1.

Alternatively, an ABS filing may includea reference to a significant obligor’sExchange Act reports instead ofproviding the required financialinformation in the filing as long as twoconditions are met.45 The filing mustinclude how the reports may beaccessed, including the third party’sname and SEC file number.

Communications WithProspective Investors During the Offering Process

GeneralIn general, the Securities Act restrictsthe types of offering communicationsbetween a registrant or other parties



and prospective investors during aregistered public offering. The SECstaff, through a series of no-actionletters issued during the mid-1990’s,modified these rules for issuers of ABSregistering their securities using FormS-3 to permit the use of structural termsheets, collateral term sheets andcomputational materials. The staffprovided definitions for each of thesetypes of written communications withinvestors and set forth filingrequirements related to the use of thesematerials. The filing requirementsdiffered somewhat depending on thetype of written material. Many issuersfound the definitions overlapping,however, and the differing filingrequirements created some confusion. Inthe ABS Rules, the SEC, while generallycodifying the stated no-action positions,has modified the rules relating to thesewritten materials to try to create a moreuniform system, reduce confusion andencourage free flow of information toinvestors.

Moreover, on November 4, 2004, theSEC issued Adopting Release No. 33-8501 (the “Offering Process Release”)which is a sweeping proposal tostreamline and more fully integratesecurities offerings (including ABSofferings), communications and theregistration process for issuers under theSecurities Act. The Offering ProcessRelease includes provisions for “freewriting prospectuses”, among otherthings, which are written communicationswith prospective investors that constituteoffers to sell securities that are or will bethe subject of a registration statementbut which writings do not constitute aprospectus satisfying the requirementsof Section 10(a) of the Securities Act.The SEC has sought comment on thisproposed rulemaking, particularlyencouraging comments by participantsin the asset-backed market. As the rulesproposed in the Offering ProcessRelease are finalized, further changes tothe requirements regardingcommunications with prospectiveinvestors during an ABS offering mayresult. As such, the SEC was not

inclined to relax the existing allowancefor written communications during anABS offering substantially in connectionwith the ABS Rules promulgated by theAdopting Release.

Use of Computational MaterialsThe ABS Rules codify the earlier no-action positions by adopting SecuritiesAct Rule 167, which is an exemptionfrom the Section 5(b)(1) requirements ofthe Securities Act for the use of ABSinformational and computationalmaterials in shelf takedowns of ABSafter the effectiveness of the Form S-3registration statement but beforedelivery of the final Section 10(a)prospectus for such takedown. Inresponse to comment, the SEC hascreated one unified definition of “ABSinformational and computationalmaterial” covering all the specifiedcategories, rather than maintaining theseparate categories from the previousno-action positions.46 Also in response tocomment, the new definition clarifiesthat providing investors with raw pooldata is permitted under the new rule,although the SEC reminds issuers andunderwriters to be mindful of privacy,consumer protection and otherrequirements regarding individual datadisclosures.

The conditions for use of ABSinformational and computationalmaterial are (1) the communicationsmust be filed to the extent requiredunder new Rule 426, and (2) thecommunication must includeprominently on the cover page: (i) theissuing entity’s name and the depositor’sname; (ii) the SEC file number for therelated registration statement; (iii) astatement that the communication isABS informational and computationalmaterial used in reliance on theexemptive rule; and (iv) a legend thaturges investors to read the relevantdocuments filed or to be filed with theSEC because they contain importantinformation. The legend also mustexplain to investors that they can getthe document for free at the SEC’s Web



site and describe which documents areavailable free from the issuer or anunderwriter.

The requirement from the prior no-action letters that computationalmaterials include a legend stating thatthe information contained in thematerial supercedes all prior ABSinformation and computational materialwas dropped.47 The SEC noted,however, that some issuers haveincluded legends or disclaimers that itfinds inappropriate, such as disclaimersof responsibility or liability for accuracyor completeness, language indicatingthat the communication is neither aprospectus nor an offer to sell or asolicitation of an offer to buy, andstatements requiring investors to read oracknowledge that they have read anydisclaimers or legends or theregistration statements. ABSinformational and computationalmaterials are not being excluded fromthe definition of “offer,” “offer to sell,”or “prospectus” under the Securities Actand when filed on Form 8-K will beincorporated into the registrationstatement. As such thesecommunications constitute offers andare subject to liability under Section12(a)(2) of the Securities Act and, if filedand incorporated into the registrationstatement for the ABS, subject toSection 11 liability. Consistent with theposition proposed in the SEC’s OfferingProcess Release, the SEC states thatABS informational and computationalmaterials will not be superceded forliability purposes by informationincluded in the final prospectus, if thefinal prospectus is not made availableuntil after the date of contract for sale,which it interprets as the date aninvestment decision is made. Given theincomplete nature of these materials,this position could create substantialnew liability for using them. The SEChas specifically requested commentsfrom the ABS industry on the OfferingProcess Release.

The exemption for ABS informationaland computational material is also

applicable to parties other than theissuer in an asset-backed transactionsuch as affiliates, underwriters anddealers. In this regard, the SEC clarifiedthat the failure by a particularunderwriter to cause the filing ofmaterials in connection with an offeringwill not affect the ability of any otherunderwriter who has complied to rely onthe exemption. Finally, the SEC added aprovision stating that an immaterial orunintentional failure to file or a delay inmeeting filing requirements will notresult in loss of the exemption, so longas a good faith and reasonable effort ismade to comply with the filingrequirement and the material is filed assoon as practicable after discovery ofthe failure.

Filing Requirements With Respectto Computational MaterialsNew Rule 426 sets forth unified filingrequirements for ABS informational andcomputational material, requiring thefollowing material to be filed: (1) if aprospective investor has indicated to theissuer or an underwriter that it willpurchase all or a portion of the class ofABS to which such materials relate, allmaterials relating to such class that areor have been provided to suchprospective investor; and (2) for anyother prospective investor, all materialsprovided to that prospective investorafter the final terms have beenestablished for all classes of the offering.These materials must be filed by thelater of the due date for filing the finalprospectus for the ABS offering or twobusiness days after first use. The filingmust be made on Form 8-K under newItem 6.01 of that Form and is therebyincorporated by reference into theregistration statement. The filer mayaggregate data presented in ABSinformational and computationalmaterials and file such data inconsolidated form, so long as any suchaggregation does not result in theomission of any information that shouldhave been filed or makes theinformation misleading.



Although computational materials werepreviously exempt from the electronicfiling requirements of EDGAR, due toupdates and improvements of theEDGAR system, ABS informational andcomputational materials will no longerbe exempt from the electronic filingrequirements. EDGAR accepts HTMLdocuments and filings made over theInternet. The system is also in theprocess of being updated to acceptmaterial in PDF format.

Publication of Research ReportsIn the Adopting Release the SEC haspromulgated Rule 139a, providing anon-exclusive safe harbor for thepublication by a broker or dealer ofresearch reports concerning a particulartype of ABS during the time suchbroker/dealer is participating in an ABSoffering of the same type that meets therequirements for use of Form S-3. ThisRule 139a represents a codification ofthe SEC’s earlier position stated in a1997 no-action letter.48

Specifically, the research report does notconstitute an offer to sell the securitiesof the ABS offering meeting therequirements for use of Form S-3 inwhich the broker/dealer participates,nor does it constitute a prospectus thatdoes not conform to the requirements ofSection 10 of the Securities Act, providedthe following conditions are met:

(1) The broker or dealer shall havepreviously published or distributed withreasonable regularity information,opinions or recommendations relating toForm S-3 ABS backed directly (or, withrespect to securitizations of othersecurities, indirectly) by substantiallysimilar collateral as that directly orindirectly backing Form S-3 ABS that isthe subject of the information, opinionor recommendation that is proposed tobe published or distributed.

(2) If the securities for the registeredoffering are proposed to be offered,offered, or are part of an unsoldallotment or subscription, theinformation, opinion or recommendation

shall not: (i) identify such securities; (ii)give greater prominence to specificstructural or collateral-related attributesof those securities than it gives to thesame attributes of other ABS that itmentions; or (iii) contain any ABSinformational and computationalmaterial relating to those securities.

(3) If the material identifies specific ABSof a specific issuer and recommends thatsuch ABS be purchased, sold or held bypersons receiving such material, then arecommendation as favorable or morefavorable as to such ABS shall havebeen published by the broker or dealerin the last publication of such broker ordealer addressing such ABS prior to thecommencement of its participation inthe distribution of the securities whoseoffering is being registered.

(4) Sufficient information is availablefrom one or more public sources toprovide a reasonable basis for the viewexpressed by the broker or dealer withrespect to the ABS that are the subjectof the information, opinion orrecommendation.

(5) If the material published by thebroker or dealer identifies other ABSbacked directly or indirectly bysubstantially similar collateral as thatdirectly or indirectly backing thesecurities whose offering is beingregistered and specifically recommendsthat such ABS be preferred over otherABS backed by different types ofcollateral, then the material shallexplain in reasonable detail the reasonsfor such preference.

Pre-Sale ReportsIn the ABS Rules the SEC tries to clarify,in response to comment, when and towhat extent an issuer or underwriterbecomes responsible for information inpresale reports prepared and distributedby unaffiliated third parties, particularlyrating agencies. Liability of issuers andunderwriters of ABS for pre-sale reportsissued by third parties not involved inthe offering process will depend on thelevel of the issuer’s or underwriter’s



involvement in the preparation ofinformation and/or endorsement orapproval of information contained in thepre-sale report. The SEC refers marketparticipants to the “entanglement”theory and to the “adoption” theory,discussed in SEC Release No. 33-7856(Apr. 28, 2000) at footnote 48 andaccompanying text, stating that itbelieves these theories are applicable to ABS.

Ongoing ReportingRequirements Under theExchange Act

Basic Reporting System for Asset-backed SecuritiesThe Amendments to the Exchange Actset out in the Adopting Releasegenerally codify the modified reportingsystem applicable to registered ABSdeveloped through numerous no-actionletters issued by the SEC staff, but inmany instances broaden the content ofongoing reporting for ABS issuers.These changes reflect a key concern ofthe SEC that servicers and sponsorsmust improve their overall level ofcompliance with the Exchange Actreporting requirements.49 Under thecurrent modified reporting system, anABS issuer is required to file periodicdistribution date statements on Form 8-K and to file annual reports on Form 10-K consisting of an annual auditedservicing statement. Because thedistribution date statements aretypically filed monthly on Form 8-Kcontaining the relevant current financialinformation for an ABS issuer, no Form10-Q filings have been required.Generally this system will remain,although the SEC has provided a newForm 10-D for filing of distribution datestatements, and has provided specificinstructions for compliance by ABSissuers with the Section 302 certificationrequirements of Sarbanes-Oxley Act inconnection with Form 10-K filings.

As under Rule 191 of the Securities Act,new Rule 3b-19 of the Exchange Act

defines the “issuer” with respect to theExchange Act reporting obligation foran ABS transaction as the depositor forthe entity issuing the ABS, acting solelyin its capacity as depositor to the issuingentity. The depositor for each issuingentity is a different “issuer” from thesame person acting as a depositor forany other issuing entity or for thepurposes of that person’s own securities.Therefore, issuing entities registered onthe same registration statement are notrelated for purposes of Exchange Actreporting, separate reports must be filedfor each issuing entity and reports maynot be consolidated for such issuingentities. Notwithstanding this approach,an authorized representative of theservicer will be permitted to signExchange Act reports and certificationson behalf of the issuing entities.Trustees will not be permitted to signthese reports and certifications.

As under the current system, ExchangeAct reporting may be suspended for anyABS issuance (including any singleseries issued by a multi-issuancevehicle) for future fiscal years followinga fiscal year when there are less than300 holders of record of that series ofsecurities at the beginning of that year.

Form 10-DThe new rules, while generallycodifying this approach, have provideda new form, Form 10-D, for the filing ofmonthly distribution date statementsand pool performance data to be usedinstead of filing such information usingForm 8-K. The stated reason for thisnew form is that investors expressedsome confusion and difficulty in tryingto identify Form 8-K filings of ABSissuers containing information regardingmaterial changes or events from thosecontaining monthly distribution dateinformation. ABS issuers will continue tobe required to file reports on Form 8-K ifa reportable event covered in one of theItems of Form 8-K occurs, such as achange in servicer, trustee, creditenhancement or otherwise or theoccurrence of material events that could



Since the distribution date report will beattached to the Form 10-D as an exhibitand will contain most, if not all, of thedisclosures required about thedistribution and pool performance, thereport itself may cross-reference such

information rather than repeating it.Taken together, however, the attacheddistribution statement and theinformation provided in the Form 10-Dmust cover all the information requiredby Item 1121 of Regulation AB.

affect payments on the ABS. See “Form8-K.”

A Form 10-D must be filed within 15days after each required distributiondate on the ABS, regardless of whethera distribution was actually made. TheSEC has allowed ABS issuers the abilityto obtain a five calendar day filingextension for Form 10-D filings, withoutaffecting Form S-3 eligibility (althoughthe filing must have actually been filedwithin the additional five day periodprior to filing a new registrationstatement on Form S-3). The Form 10-Dmust attach as an exhibit the report orstatement that is required under thetransaction documents to be delivered tothe trustee and/or the security holders ofthe ABS. The report on Form 10-D mustbe signed by a senior officer of the

depositor or the servicer, if acting onbehalf of the issuing entity.

Form 10-D, which refers to Item 1121 ofRegulation AB, requires updateddisclosure of current payment and poolperformance information, including cashflows, delinquencies, and losses,additions, repurchases, removals,substitutions and other changes in poolcomposition, material changes in credit-granting or underwriting policies,material changes in pool selectioncriteria, updated information regardingsignificant obligors or enhancers andmaterial amendments, breaches,defaults or waivers under thetransaction documents. The menu ofdisclosure items for Form 10-D is setforth in table below.



Item 1 Distribution and Pool Performance Information (Item 1121 of Regulation AB)

Item 2 Legal Proceedings (Item 1117 of Regulation AB)

Item 3 Sales of Securities and Use of Proceeds (Item 2 of Part II of Form 10-Q)

Item 4 Defaults Upon Senior Securities (Item 3 of Part II of Form 10-Q)

Item 5 Submission of Matters to a Vote of Security Holders (Item 4 of Part II of Form 10-Q)

Item 6 Significant Obligors of Pool Assets (Item 1112(b) of Regulation AB)

Item 7 Significant Enhancement Provider Information (Items 1114(b)(2) and 1115(b) ofRegulation AB)

Item 8 Other Information

Item 9 Exhibits (Item 601 of Regulation S-K)

Form Items and Source of Disclosure Required

Disclosure for Form 10-D



Disclosure for Form 10-K for ABS

Annual Report on Form 10-KThe SEC has adopted a new generalinstruction as to how this form is to beused for an annual report with respectto an ABS issuer. Again, the new rulescodify existing no-action positions, withmodifications to address Section 302 ofthe Sarbanes-Oxley Act. Because asset-backed issuers typically do not have aprincipal executive officer or principalfinancial officer, the signature requiredfor the Section 302 ABS certification isthe senior officer in charge ofsecuritization of the depositor, if thedepositor is signing the Form 10-Kreport, or the senior officer in charge ofthe servicing function of the servicer, ifthe servicer is signing the Form 10-K

report on behalf of the issuing entity. If multiple servicers are involved inservicing the pool assets, the seniorofficer in charge of the servicingfunction of the master servicer must sign if a representative of the servicer isto sign. The annual servicer compliancestatement must be filed as an exhibit tothe Form 10-K, containing statementsregarding the servicer’s compliance with its obligations under the particularservicing agreement for the ABStransaction. If multiple servicers areinvolved in servicing the pool assets,separate compliance statements arerequired from each servicer servicing 10percent or more of the pool assets.

Existing Form Items RReeqquuiirreedd iiffAApppplliiccaabbllee

May beOmitted

Item 1 Business. •

Item 2 Properties. •

Item 3 Legal Proceedings. •

Item 4 Submission of Matters to a Vote of Security Holders. •

Item 5 Market for Registrant's Common Equity and RelatedStockholder Matters.

•

Item 6 Selected Financial Data. •

Item 7 Management's Discussion and Analysis of FinancialCondition and Results of Operations.

•

Item7A

Quantitative and Qualitative Disclosure About MarketRisk.

•

Item 8 Financial Statements and Supplementary Data. •

Item 9 Changes in and Disagreements with Accountants onAccounting and Financial Disclosure.

•

Item 9A Controls and Procedures. •

Item 9B Other Information. •

Item 10 Directors and Executive Officers of the Registrant. • 1

Certifications for Asset BackedSecurities under Section 302 of theSarbanes-Oxley ActThe SEC has amended Item 601 ofRegulations S-K to provide the specificform and content of the certificationrequired by Section 302 of theSarbanes-Oxley Act for ABS issuers.The same person who signs the Form10-K must also sign the Section 302certification. The SEC has added aninstruction to the certification sayingthat the signer may reasonably rely on

information that unaffiliated trustees,depositors, servicer, sub-servicers or co-servicers have provided. If the signerdoes so, it must provide an additionalstatement in the certification identifyingthe unaffiliated parties on which thesigner reasonably relied. Unfortunately,the SEC gives no guidance on whatconstitutes reasonable reliance or themanner in which reasonable reliancemay be established. The new form ofcertification is as follows:



CERTIFICATIONS

I, [identify the certifying individual], certify that:

1. I have reviewed this report on Form 10-K and all reports on Form 10-D required to befiled in respect of the period covered by this report on Form 10-K of [identify the issuingentity] (the “Exchange Act periodic reports”);

2. Based on my knowledge, the Exchange Act periodic reports, taken as a whole, do notcontain any untrue statement of a material fact or omit to state a material fact necessary

1 If the issuing entity does not have any executive officers or directors.

Item 11 Executive Compensation. • 1

Item 12 Security Ownership of Certain Beneficial Owners andManagement.

• 1

Item 13 Certain Relationships and Related Transactions. • 1

Item 14 Principal Accountant Fees and Services. •

Item 15 Exhibits and Financial Statement Schedules. •


Item 1112(b) of Regulation AB, Significant Obligor FinancialInformation.

•

Items 1114(b)(2) and 1115(b) of Regulation AB, SignificantEnhancement Provider Financial Information.

•

Item 1117 of Regulation AB, Legal Proceedings. •

Item 1119 of Regulation AB, Affiliations and Certain Relationshipsand Related Transactions.

•

Item 1122 of Regulation AB, Compliance with Applicable ServicingCriteria.

•

Item 1123 of Regulation AB, Servicer Compliance Statement. •



to make the statements made, in light of the circumstances under which such statementswere made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, all of the distribution, servicing and other informationrequired to be provided under Form 10-D for the period covered by this report is includedin the Exchange Act periodic reports;

4. [I am responsible for reviewing the activities performed by the servicer(s) and basedon my knowledge and the compliance review(s) conducted in preparing the servicercompliance statement(s) required in this report under Item 1123 of Regulation AB, andexcept as disclosed in the Exchange Act periodic reports, the servicer(s) [has/have] fulfilled [its/their] obligations under the servicing agreement(s); and]

[Based on my knowledge and the servicer compliance statement(s) required in thisreport under Item 1123 of Regulation AB, and except as disclosed in the Exchange Actperiodic reports, the servicer(s) [has/have] fulfilled [its/their] obligations under the servicing agreement(s); and]

5. All of the reports on assessment of compliance with servicing criteria for asset-backedsecurities and their related attestation reports on assessment of compliance with servicingcriteria for asset-backed securities required to be included in this report in accordancewith Item 1122 of Regulation AB and Exchange Act Rules 13a-18 and 15d-18 have beenincluded as an exhibit to this report, except as otherwise disclosed in this report. Anymaterial instances of noncompliance described in such reports have been disclosed inthis report on Form 10-K.

[In giving the certifications above, I have reasonably relied on information provided tome by the following unaffiliated parties [name of servicer, sub-servicer, co-servicer,depositor or trustee].]

Date: . . . . . . . . . . . . . .

_______________________[Signature][Title]

Report on Assessment ofCompliance with ServicingCriteria and AccountantsAttestationAlthough the modified reporting systemfor Exchange Act reporting has notrequired audited financial statements forthe issuing entity in the annual reporton Form 10-K, the system has requiredan assertion by the servicer and anattestation by an independent publicaccountant regarding compliance withthe servicing criteria. The SEC hadcodified this approach in the new rules,continuing to require as part of thereport on Form 10-K a servicerassessment of compliance with servicingcriteria and a public accountant’sattestation with respect to servicingcompliance. The SEC notes that in thepast there has been wide variation inthe application of these requirements

and the kinds of compliance statementsand attestations provided by ABSissuers. As a result, the SEC has adopteda single set of minimum servicingcriteria to be applied across a variety oftypes of ABS transactions and has setout those criteria in paragraph (d) to Item1122 of Regulation AB. The servicingcriteria in Item 1122 include generalservicing considerations (such as policiesfor monitoring performance triggers anddefaults and monitoring third partyservice providers), cash collection andadministration requirements, investorreporting and payments, and pool assetadministration. The servicerscompliance assessment and relatedaccountant attestation must addresscompliance with these servicing criteria.

The SEC also prescribes the form ofservicer assessment report and public

accountants attestation report in Item1122(a) and (b) of Regulation AB.50 Inresponse to comment, the SEC hasremoved in the final rules the proposedrequirement that a single responsibleparty make an assertion regardingservicing compliance with the Item 1122servicing criteria covering the entireservicing function. Instead the SECadopted an approach requiring reportson assessments of compliance withservicing criteria from each partyparticipating in the servicing functionwith associated attestation reports fromregistered public accountants to be filedas exhibits to the Form 10-K report. Alsothe SEC revised Section 5 of the Section302 certification to require a certificationfrom the signing party that requiredreports from all parties participating inthe servicing function have beenincluded as an exhibit to the Form 10-K.If any servicer compliance assessmentreport or public accountants attestationreport has not been obtained or is notincluded as an exhibit to the filing, theForm 10-K must disclose this andprovide an explanation as to why suchreport has not been included. Further, ifa servicer assessment report or anaccountants attestation report identifiesany material noncompliance with theservicing criteria set out in Item 1122(d),

the Form 10-K must identify suchnoncompliance. A potentially largergroup of servicers than that providingcompliance certificates must provide theservicer assessment report and publicaccountants attestation report. Thisgroup must include all parties whoparticipate in the servicing functionunless their activities relate to less than5 percent of the assets in the pool.

Current Reporting on Form 8-KOn March 11, 2004 the SEC amendedForm 8-K to expand the number ofreportable events. The new ABS Rulesmake those amendments equallyapplicable to ABS. In addition, the SECadopted several proposed ABS-specificitems under Section 6 of Form 8-K. Assuch, the number or reportable eventsunder Form 8-K with respect to ABS willincrease, although with the addition ofForm 10-D for reporting monthlydistribution date statements, reports onForm 8-K will return to their originalpurpose of identifying material changesor events rather than regular poolinformation updates. Reports on Form 8-K must be filed within 4 business daysof the occurrence of one of the specifiedreportable events. The following is thetable of reportable events on Form 8-Kwith respect to ABS.



Existing Form Items Required ifapplicable

May beOmitted

Item 1.01 Entry into a Material Definitive Agreement. •

Item 1.02 Termination of a Material Definitive Agreement. •

Item 1.03 Bankruptcy or Receivership. •

Item 2.01 Completion of Acquisition or Disposition of Assets. •

Item 2.02 Results of Operations and Financial Condition •

Item 2.03 Creation of a Direct Financial Obligation or anObligation under an Off-Balance Sheet Arrangementof a Registrant.

•

Disclosure for Form 8-K for ABS



Item 2.04 Triggering Events That Accelerate or Increase aDirect Financial Obligation or an Obligation under anOff-Balance Sheet Arrangement.

•

Item 2.05 Costs Associated with Exit or Disposal Activities. •

Item 2.06 Material Impairments. •

Item 3.01 Notice of Delisting or Failure to Satisfy a ContinuedListing Rule or Standard; Transfer of Listing.

•

Item 3.02 Unregistered Sales of Equity Securities. •

Item 3.03 Material Modifications to Rights of Security Holders. •

Item 4.01 Changes in Registrant’s Certifying Accountant. •

Item 4.02 Non-Reliance on Previously Issued FinancialStatements or a Related Audit Report or CompletedInterim Review.

•

Item 5.01 Changes in Control of Registrant. •

Item 5.02 Departure of Directors or Principal Officers. Electionof Directors. Appointment of Principal Officers.

•

Item 5.03 Amendments to Articles of Incorporation or Bylaws.Change in Fiscal Year

•

Item 5.04 Temporary Suspension of Trading Under Registrant’sEmployee Benefit Plans.

•

Item 5.05 Amendments to the Registrant’s Code of Ethics, orWaiver of a Provision of the Code of Ethics.

•

Item 7.01 Regulation FD Disclosure •

Item 8.01 Other Events •

Item 9.01 Financial Statements and Exhibits. •

Additional Items added to Form 8-K for ABS

Item 6.01. ABS Informational and Computational Material. •

Item 6.02 Change of Servicer or Trustee. •

Item 6.03. Change in Credit Enhancement or Other ExternalSupport.

•

Item 6.04 Failure to Make a Required Distribution. •

Item 6.05 Securities Act Updating Disclosure •

With respect to new Item 6.05,Securities Act Updating Disclosure, thisitem is intended to apply to instanceswhere the composition of the asset poolat the time of issuance differs from thecomposition of the pool described in thefinal prospectus for the offering. If undera shelf registration statement on FormS-3 a material pool characteristic at thetime of a takedown differs by 5 percentor more from the description of the assetpool in the final prospectus filed for thetakedown pursuant to Rule 424,disclosure about the actual asset poolwill be required, including disclosureregarding new significant obligors,servicers or originators.

Transition Period

The effective date of the final rules isMarch 8, 2005. However, in response tocomment letters requesting a substantialtransition period, the SEC has provideda set of delayed compliance dates.

Any series of ABS with an initialoffering date after December 31, 2005must comply with the new rules andforms in all respects. Transactions withan initial offering date on or beforeDecember 31, 2005 are fullygrandfathered and are not required tocomply with the new rules. In particular,for these transactions the static pooldata and other new disclosurerequirements do not apply to theoffering, and the new Exchange Actreporting rules, including theassessment of servicing compliance andaccountants attestation requirements,will never apply.

ABS shelf registrations filed prior toDecember 31, 2005, but continuing to bevalid after such date, must be amendedto comply with the new rules. RegardingABS shelf registration statements filedon or before August 31, 2005:

(1) for any takedown with an initialoffering date after December 31, 2005but not after March 31, 2006, the baseprospectus does not need to be revised,but the base prospectus and theprospectus supplement taken togethermust comply with the new rules andPart II of the registration statement mustbe amended post-effectively asnecessary to add any requiredundertakings, and

(2) for any takedown with an initialoffering date after March 31, 2006, theregistration statement must be amendedpost-effectively to make the baseprospectus comply with the new rules,and to add any required undertakings toPart II.

Regarding an ABS shelf registrationstatement filed after August 31, 2005,for any takedown with an initial offeringdate after December 31, 2005, theregistration statement must be amendedeither pre-effectively or post-effectivelyto make the base prospectus complywith the new rules, and to add anyrequired undertakings to Part II.

A post-effective amendment to an ABSshelf registration statement for purposesof compliance could trigger full reviewby the SEC staff.

Although this Alert is intended tohighlight certain of the key provisions ofthe Adopting Release, the AdoptingRelease is very detailed and complexand much of what has been presented isby necessity a summary. For moreinformation and advice, please contactLaura A. DeFelice at +1-212-906-1780,Kevin C. Blauch at +1-212-906-1241,Kevin Fingeret at +1-212-906-1237,Scott Smith at +1-212-906-1849, JoanneLee at +1-212-906-1872 or Ellen Marksat +1-312-876-7626 or any Latham &Watkins LLP attorney you normallyconsult.



Endnotes

1 Regulation AB is located in a subpart ofRegulation S-K as Items 1100-1123.

2 For a discussion of the ProposedAmendments, see Latham & Watkins ClientAlert No. 402, dated July 7, 2004.

3 “Asset-Backed Security” is defined in Item1101 (c) of Regulation AB [17 CFR Part 229, § 229.1101(c)] as:

“(1)a security that is primarily serviced by thecash flows of a discrete pool of receivablesor other financial assets, either fixed orrevolving, that by their terms convert intocash within a finite time period, plus anyrights or other assets designed to assure theservicing or timely distributions of proceedsto the security holders; provided that in thecase of financial assets that are leases, thoseassets may convert to cash partially by thecash proceeds form the disposition of thephysical property underlying such leases,

(2)the following additional conditions apply inorder to be considered an “asset-backedsecurity:”

(i)neither the depositor nor the issuing entityis an investment company under theInvestment Company Act of 1940 nor willbecome an investment company as a resultof the asset-backed securities transaction,

(ii)the activities of the issuing entity for theasset-backed securities are limited to passively owning or holding the pool ofassets, issuing the asset-backed securitiessupported or serviced by those assets, andother activities reasonably incidental thereto,

(iii)no non-performing assets are part of theasset pool as of the measurement date,

(iv)delinquent assets do not constitute 50 percent or more, as measured by dollar volume, of the asset pool as of the measurement date,

(v)with respect to securities that are backed by leases, the portion of the securitized pool balance attributable to the residualvalue of the physical property underlyingthe leases, as determined in accordancewith the transaction agreements for thesecurities, does not constitute: (A) for motorvehicle leases, 65 percent or more, as measure by dollar volume, of securitizedpool balance as of the measurement date,and (B) for all other leases, 50 percent ormore, as measured by dollar volume, of the securitized pool balance as of the measurement date, and

(3)notwithstanding the requirement in paragraph (c)(1) of this section that theasset pool be a discrete pool of assets, thefollowing are considered to be a discretepool of assets for purposes of being considered an “asset-backed security”:

(i)Master Trusts. The offering related to thesecurities contemplates adding additionalassets to the pool that backs such securitiesin connection with future issuances of asset-backed securities backed by such pool. Theoffering related to the securities also maycontemplate additions to the asset pool, tothe extent consistent with paragraphs(c)(3)(ii) and (c)(3)(iii) of this section, in connection with maintaining minimum poolbalances in accordance with the transactionagreements for master trusts with revolvingperiods or receivables or other financialassets that arise under revolving accounts.

(ii)Prefunding Periods. The offering related tothe securities contemplates a prefundingaccount where a portion of the proceeds ofthat offering is to be used for the futureacquisition of additional pool assets, if theduration of the prefunding period does notextend for more than one year from thedate of issuance of the securities and theportion of the proceeds for such prefundingaccount does not involve in excess of: (A) for master trusts, 50 percent of theaggregate principal balance of the totalasset pool whose cash flows support thesecurities; and (B) for other offerings, 50percent of the proceeds of the offering.

(iii)Revolving Periods. The offering related tothe securities contemplates a revolving period where cash flows from the poolassets may be used to acquire additionalpool assets, provided, that, for securitiesbacked by receivables or other financialassets that do not arise under revolvingaccounts, the revolving period does notextend for more than three years from thedate of issuance of the securities and theadditional pool assets are of the same general character as the original poolassets.”

4 This appears to be somewhat circular, in thatthe exemption from the Investment CompanyAct typically relied upon in an ABS offering is the one provided in Rule 3a-7 that appliesto investment grade rated ABS issued by apassive issuer.

5 The SEC defines an asset as “non-performing”if any of the following are true: (1) the poolasset would be treated as wholly or partiallycharged-off under the requirements in the



transaction agreements for the ABS, (2) thepool asset would be treated as wholly or partially charged-off under the charge-offpolicies of the sponsor, an affiliate of thesponsor that originates the pool asset or a servicer that services the pool asset; or (3) thepool asset would be treated as wholly or partially charged-off under the charge-offpolicies applicable to such pool asset estab-lished by the primary safety and soundnessregulator of any entity listed above or the program or regulatory entity that oversees the program under which the pool asset wasoriginated. Clause (3) responds to concernsraised in connection with the ProposedAmendments that servicers would have toevaluate non-performing assets under differentstandards for SEC disclosure than thoserequired by bank regulators.

6 The SEC recognizes that charged-off or delinquent assets may technically remain partof the securitized pool if they are given a zerobalance in cash flow calculations and fundingformulas and no proceeds are applied to thepurchase of charged-off assets or delinquentassets exceeding the percentage limitationapplicable under the definition of ABS andthe Form S-3 eligibility requirements. Thisresolves a difficulty posed by the ProposedAmendments for certain multi-issuance vehicles, which typically retain charged-offand delinquent assets in the pool.

7 A delinquent asset is defined as a pool assetany portion of which is more than 30 days or 31 days or a single payment cycle, asapplicable, past due from the contractuallyrequired payment due date, determined inaccordance with any of the following: (1) thetransaction agreements for the ABS, (2) thedelinquency recognition policies of the sponsor, any affiliate of the sponsor that originated the pool asset or the servicer of the pool asset; or (3) the delinquency recogni-tion policies applicable to such pool assetestablished by the primary safety and soundness regulator of any of the sponsor,any affiliated thereof that originated the poolasset or the servicer of the pool asset or theprogram or regulatory entity that oversees the program under which the pool asset wasoriginated. As with non-performing assets,the final definition better accommodatesexisting practice and regulatory requirements.

8 See Note 6 above regarding treating over-concentrations as having a zero balance. Also note that the percentage limitation ondelinquent assets in the asset pool for Form S-3 eligibility is 20 percent (i.e., the pool must

have less than 20 percent, by dollar volume,of delinquent assets as of the cut-off date orprospectus information reporting date, asapplicable, to qualify for Form S-3 use).

9 This was increased to 65 percent from the 60 percent level contained in the ProposedAmendments.

10 Note that these residual value percentagelimitations are lower for Form S-3 eligibility.For Form S-3 eligibility, residual values mustbe less than 50 percent for motor vehicle leases, and no more than 20 percent for otherleases.

11 These requirements are that the pre-fundingperiod does not exceed one year from thedate of issuance of the ABS and that the portion of the proceeds deposited into suchpre-funding account does not exceed (1) formaster trusts, 50 percent of the aggregateprincipal balance of the total asset pool whosecash flows support the securities, and (2) forother offerings, 50 percent of the proceeds ofthe offering. The SEC dropped its proposalset forth in the Proposed Amendments thatthese percentage limitations reduce to 25 percent over the same one-year period forForm S-3 eligibility and has kept a singlemeasure of 50 percent for both Form S-1 and Form S-3 use.

12 These conditions are that the revolving perioddoes not extend for more than three yearsfrom the date of issuance of the ABS and theadditional pool assets are of the same generalcharacter as the original pool assets.

13 Mortgage related securities offerings shoulduse Form S-1 in lieu of Form S-11 for futuretransactions. A mortgage related securitiesoffering meeting the requirements of Rule415(a)(1)(vii) may be done on a continuous ordelayed offering basis using Form S-1, even if the mortgage related securities do not meetthe requirements of Form S-3.

14 The SEC re-states in the Adopting Release itsposition that if a registrant plans a prompttakedown of ABS following the effectivenessof a registration statement on Form S-3, the registration statement at the time of effectiveness must include all available current information regarding the proposedoffering, including information about theasset pool, subject to permitted omissionsunder Rule 430A of the Securities Act.

15 The SEC also gives some guidance regardingthe requirements for filing of legal opinions,stating that where a prompt offering underthe registration statement is not contemplated,opinions filed as of effectiveness (which is a



requirement of Items 601(b)(5) and 601(b)(8)of Regulations S-K) must be signed opinions,although they may be appropriately conditioned or qualified pending the actualopinion. Amended or final opinions withoutsuch conditions or qualifications must be filedfor each takedown.

16 At the same time, the SEC cautions that theregistration statement should only describefeatures that the issuer reasonably contem-plates using in an actual takedown.

17 If pool assets of different types or differentjurisdictions are intended to be pooledtogether in a single transaction, a single baseand form of supplement is permitted, so longat there are appropriate disclosures for eachasset type or jurisdiction included. Thisresolves a concern expressed in regard to theProposed Amendment that multi-jurisdictionofferings would be impeded by the require-ment for separate prospectuses.

18 These Items are: Items 1.01, 1.02, 2.03, 2.04,2.05, 2.06, 4.02, 6.01, 6.03 or 6.05 of Form 8-K.This represents an expanded list from what iscurrently being applied by the SEC in practice.

19 See the Adopting Release at page 76.20 See “Ongoing Reporting Requirements under

the Exchange Act”, below.21 The SEC gives the example here of a bank

acting as depositor not being able to use theexemption from registration provided inSection 3(a)(2) of the Securities Act for itsABS.

22 The SEC cites a statistic that non-US ABSissuance grew from $93 billion of totalissuance in 2000 to $185 billion of totalissuance in 2003.

23 See Item 1101 of Regulation AB for definedterms.

24 See Item 1101(l) of Regulation AB [17 CFRPart 229, §229.1101(l)].

25 See Item 1101(e) of Regulation AB [17 CFRPart 229, §229.1101(e)].

26 See Item 1101(f) of Regulation AB [17 CFRPart 229, §229.1101(f)].

27 Market prices would not typically be includedin current ABS disclosures. In response tocomments, the SEC has limited this newrequirement to circumstances in which thepool assets are themselves securities, and isnot requiring pricing information for transfersof other assets, which some commenters consider to be proprietary.

28 No financial information for the servicer isrequired unless there is a material risk that

the financial condition of the servicer couldmaterially impact the performance of the ABS.

29 The Regulation does not explicitly requireinformation on servicer portfolio loss anddelinquency history, which is often includedin current practice in the prospectus, nor doesit require static pool data on pools it services.

30 Static pool data indicates how the performanceof groups of assets are performing over timeand, by presenting comparisons betweenoriginations at similar points in the assets’lives, allows the detection of patterns thatmay not be evident from overall portfolionumbers.

31 A vintage origination year refers to assetsoriginated during the same year.

32 These characteristics may include, amongother things, the number of pool assets; original pool balance; weighted average initial pool balance; weighted average interest or note rate; weighted average original term; weighted average remainingterm; weighted average and minimum andmaximum standardized credit score or otherapplicable measure of obligor credit quality;product type; loan purpose; loan-to-valueinformation; distribution of assets by loan or note rate; and geographic distributioninformation.

33 Although the SEC received numerous comments from issuers and their representa-tives who objected to the disclosure of information relating to standardized creditscores, the SEC stated that investors consideredthis information to be important and thereforeretained the proposed requirement.

34 The foregoing rule was adopted in responseto concern expressed by commenters as toapplication of the disclosure requirement intransactions, such as “rent-a-shelf” andaggregator transactions, where one or moreentities transfer the pool assets to an unaffili-ated depositor. In particular, these commentersargued that in some instances static poolinformation for one or more entities otherthan the sponsor may be more appropriatethan information about the sponsor.

35 The filing accommodation provided for in theABS Rules will apply with respect to filingsfiled on or before December 31, 2009.

36 If these conditions are met, the Internet Website information is deemed to be included inthe prospectus and need not be physicallyrepeated in the prospectus or in a Form 8-Kreport incorporated by reference into theprospectus and registration statement.



37 The Web site used for disclosure of the information need not be a Web site maintainedby the issuer, although, as noted below, thereare conditions for the retention and availabilityof the information.

38 The five-year period commences from the filing date of the final prospectus, or the dateof first use of the prospectus, whichever isearlier.

39 The registrant is required to retain all versionsof the information posted through the Website address for a period of not less than fiveyears in a form that permits delivery to aninvestor or the SEC, and the registrant mustfurnish to the SEC or the SEC staff uponrequest a copy of any or all informationretained pursuant to this requirement.

40 As the information will be deemed to beincluded in the prospectus, disclaimers of liability or responsibility for the informationare not appropriate.

41 Legal or regulatory provisions include bankruptcy, consumer protection, predatorylending, privacy, property rights, licensing orregistration requirements or foreclosure lawsor regulations.

42 Cash flows to support the ABS in some transactions come from more than one source,such as in lease-backed transactions thatinclude separate cash flows from lease payments and from the residual value realized on sale of the leased asset at the termination of the lease.

43 Under certain circumstances, this informationmay be incorporated by reference from otherfilings by the significant obligor with the SEC.See the discussion under “Alternatives toPresent Third Party Financial Information”below.

44 Under certain circumstances, this informationmay be incorporated by reference from otherfilings by the entity with the SEC. See thediscussion under “Alternatives to PresentThird Party Financial Information” below.

45 The first condition is that neither the signifi-cant obligor nor any of its affiliates has had a direct or indirect agreement, arrangement,relationship or understanding, written or otherwise, relating to the ABS transaction,and neither the third party nor any of its affiliates is an affiliate of the sponsor, depositor,issuing entity or underwriter of the ABStransaction. The second condition is that tothe knowledge of the registrant, the significantobligor meets at least one of certain eligibilitycategories.

46 The definition of “ABS informational andcomputational material” is:

“a written communication consisting solely of one or some combination of the following:”

• Factual information regarding the asset-backed securities being offered and thestructure and basic parameters of the securities, such as the number of classes,seniority, payment priorities, terms of payment, the tax, ERISA and other legalconclusions of counsel, and descriptiveinformation relating to each class (e.g., principal amount, coupon, minimumdenomination, anticipated price, yield,weighted average life, credit enhancements,anticipated ratings, and other similar information relating to the proposed structure of the offering)

• Factual information regarding the poolassets underlying the asset-backed securities,including origination, acquisition and poolselection criteria, information regarding anyprefunding or revolving period applicable tothe offering, information regarding significantobligors, data regarding the contractual andrelated characteristics of the underlyingpool assets (e.g., weighted average coupon,weighted average maturity, delinquencyand loss information and geographic distribution) and other factual informationconcerning the parameters of the asset poolappropriate to the nature of the underlyingassets, such as the type of assets comprisingthe pool and the programs under which theloans were originated

• Identification of key parties to the transaction,such as servicers, trustees, depositors, sponsors, originators and providers of creditenhancement or other support, including abrief description of each such party’s roles,responsibilities, background and experience

• Static pool data, as discussed previously,such as for the sponsor’s and/or servicer’sportfolio, prior transactions or the asset pool itself

• Statistical information displaying for a particular class of asset-backed securitiesthe yield, average life, expected maturity,interest rate sensitivity, cash flow character-istics, total rate of return, option adjustedspread or other financial or statistical information relating to the class or classesunder specified prepayment, interest rate,loss or other hypothetical scenarios.Examples of such information under thedefinition include:





- Statistical results of interest rate sensitivityanalyses regarding the impact on yield orother financial characteristics of a class ofsecurities from changes in interest rates atone or more assumed prepayment speeds

- Statistical information showing the cashflows that would be associated with a particular class of asset-backed securities at a specified prepayment speed

- Statistical information reflecting the financial impact of losses based on a varietyof loss or default experience, prepayment,interest rate and related assumptions

• The names of underwriters participating in the offering of the securities, and theiradditional roles, if any, within the under-writing syndicate

• The anticipated schedule for the offering(including the approximate date uponwhich the proposed sale to the public willbegin) and a description of marketingevents (including the dates, times, locationsand procedures for attending or otherwiseaccessing them)

• A description of the procedures by whichthe underwriters will conduct the offeringand the procedures for transactions in connection with the offering with an under-writer or participating dealer (includingprocedures regarding account-opening and submitting indications of interest andconditional offers to buy)

47 The SEC recognizes that this may not be atrue statement and therefore removed therequirement.

48 Public Securities Association (Feb. 7, 1997).49 See Note 17 and related text above.50 Regulation S-X has been amended (see Rule

1-02(3) of Regulations S-X) to reflect therequirements of the attestation report to beprepared by a registered public accountingfirm, stating that the report must express anopinion, or state that an opinion cannot beexpressed, concerning an asserting party'sassessment of compliance with servicing criteria, in accordance with standards onattestation engagements. When an opinioncannot be expressed, the accounting firmmust state why it was unable to express suchan opinion.



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