[Federal Register Volume 63, Number 66 (Tuesday, April 7, 1998)]
[Notices]
[Pages 17020-17035]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-9048]
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
Prohibited Transaction Exemption 98-13; Exemption Application No.
D-10304, et al.]
Grant of Individual Exemptions; MBNA America Bank, National
Association
AGENCY: Pension and Welfare Benefits Administration, Labor.
ACTION: Grant of individual exemptions.
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SUMMARY: This document contains exemptions issued by the Department of
Labor (the Department) from certain of the prohibited transaction
restrictions of the Employee Retirement Income Security Act of 1974
(the Act) and/or the Internal Revenue Code of 1986 (the Code).
Notices were published in the Federal Register of the pendency
before the Department of proposals to grant such exemptions. The
notices set forth a summary of facts and representations contained in
each application for exemption and referred interested persons to the
respective applications for a complete statement of the facts and
representations. The applications have been available for public
inspection at the Department in Washington, D.C. The notices also
invited interested persons to submit comments on the requested
exemptions to the Department. In addition the notices stated that any
interested person might submit a written request that a public hearing
be held (where appropriate). The applicants have represented that they
have complied with the requirements of the notification to interested
persons. No public comments and no requests for a hearing, unless
otherwise stated, were received by the Department.
The notices of proposed exemption were issued and the exemptions
are being granted solely by the Department because, effective December
31, 1978, section 102 of Reorganization Plan No. 4 of 1978 (43 FR
47713, October 17, 1978) transferred the authority of the Secretary of
the Treasury to issue exemptions of the type proposed to the Secretary
of Labor.
Statutory Findings
In accordance with section 408(a) of the Act and/or section
4975(c)(2) of the Code and the procedures set forth in 29 CFR Part
2570, Subpart B (55 FR 32836, 32847, August 10, 1990) and based upon
the entire record, the Department makes the following findings:
(a) The exemptions are administratively feasible;
(b) They are in the interests of the plans and their participants
and beneficiaries; and
(c) They are protective of the rights of the participants and
beneficiaries of the plans.
MBNA America Bank, National Association (MBNA)
Located in Wilmington, Delaware
[Prohibited Transaction Exemption No. 98-13; Application No. D-
10304]
[[Page 17021]]
Exemption
Section I--Transactions
A. The restrictions of sections 406(a) and 407(a) of the Act and
the taxes imposed by section 4975(a) and (b) of the Code, by reason of
section 4975(c)(1)(A) through (D) of the Code, shall not apply to the
following transactions involving trusts and certificates evidencing
interests therein:
(1) The direct or indirect sale, exchange or transfer of
certificates in the initial issuance of certificates between the trust,
the sponsor or an underwriter and an employee benefit plan subject to
the Act or section 4975 of the Code (a plan) when the sponsor,
servicer, trustee or insurer of a trust, the underwriter of the
certificates representing an interest in the trust, or an obligor is a
party in interest with respect to such plan;
(2) The direct or indirect acquisition or disposition of
certificates by a plan in the secondary market for such certificates;
and
(3) The continued holding of certificates acquired by a plan
pursuant to Section I.A.(1) or (2).
Notwithstanding the foregoing, Section I.A. does not provide an
exemption from the restrictions of sections 406(a)(1)(E), 406(a)(2) and
407 for the acquisition or holding of a certificate on behalf of an
Excluded Plan, as defined in Section III.K. below, by any person who
has discretionary authority or renders investment advice with respect
to the assets of the Excluded Plan that are invested in
certificates.1
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\1\ Section I.A. provides no relief from sections 406(a)(1)(E),
406(a)(2) and 407 for any person rendering investment advice to an
Excluded Plan within the meaning of section 3(21)(A)(ii) and
regulation 29 CFR 2510.3-21(c).
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B. The restrictions of sections 406(b)(1) and 406(b)(2) of the Act
and the taxes imposed by section 4975(a) and (b) of the Code, by reason
of section 4975(c)(1)(E) of the Code, shall not apply to:
(1) The direct or indirect sale, exchange or transfer of
certificates in the initial issuance of certificates between the trust,
the sponsor or an underwriter and a plan when the person who has
discretionary authority or renders investment advice with respect to
the investment of plan assets in the certificates is (a) an obligor
with respect to receivables contained in the trust constituting 0.5
percent or less of the fair market value of the aggregate undivided
interest in the trust allocated to the certificates of the relevant
series, or (b) an affiliate of a person described in (a); if
(i) The plan is not an Excluded Plan;
(ii) Solely in the case of an acquisition of certificates in
connection with the initial issuance of the certificates, at least 50
percent of each class of certificates in which plans have invested is
acquired by persons independent of the members of the Restricted Group,
as defined in Section III.L., and at least 50 percent of the aggregate
undivided interest in the trust allocated to the certificates of a
series is acquired by persons independent of the Restricted Group;
(iii) A plan's investment in each class of certificates of a series
does not exceed 25 percent of all of the certificates of that class
outstanding at the time of the acquisition;
(iv) Immediately after the acquisition of the certificates, no more
than 25 percent of the assets of a plan with respect to which the
person has discretionary authority or renders investment advice is
invested in certificates representing the aggregate undivided interest
in a trust allocated to the certificates of a series and containing
receivables sold or serviced by the same entity; 2 and
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\2\ For purposes of this exemption, each plan participating in a
commingled fund (such as a bank collective trust fund or insurance
company pooled separate account) shall be considered to own the same
proportionate undivided interest in each asset of the commingled
fund as its proportionate interest in the total assets of the
commingled fund as calculated on the most recent preceding valuation
date of the fund.
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(v) Immediately after the acquisition of the certificates, no more
than 25 percent of the assets of a plan with respect to which the
person has discretionary authority or renders investment advice is
invested in certificates representing an interest in the trust, or
trusts containing receivables sold or serviced by the same entity. For
purposes of paragraphs B.(1)(iv) and B.(1)(v) only, an entity shall not
be considered to service receivables contained in a trust if it is
merely a subservicer of that trust;
(2) The direct or indirect acquisition or disposition of
certificates by a plan in the secondary market for such certificates,
provided that conditions set forth in Section I.B.(1)(i) and (iii)
through (v) are met; and
(3) The continued holding of certificates acquired by a plan
pursuant to Section I.B. (1) or (2).
C. The restrictions of sections 406(a), 406(b) and 407(a) of the
Act and the taxes imposed by section 4975 (a) and (b) of the Code, by
reason of section 4975(c) of the Code, shall not apply to transactions
in connection with the servicing, management and operation of a trust,
including reassigning receivables to the sponsor, removing from the
trust receivables in accounts previously designated to the trust,
changing the underlying terms of accounts designated to the trust,
adding new receivables to the trust, designating new accounts to the
trust, the retention of a retained interest by the sponsor in the
receivables, the exercise of the right to cause the commencement of
amortization of the principal amount of the certificates, or the use of
any eligible swap transactions, provided that:
(1) Such transactions are carried out in accordance with the terms
of a binding pooling and servicing agreement;
(2) The pooling and servicing agreement is provided to, or
described in all material respects in the prospectus or private
placement memorandum provided to, investing plans before they purchase
certificates issued by the trust; 3
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\3\ In the case of a private placement memorandum, such
memorandum must contain substantially the same information that
would be disclosed in a prospectus if the offering of the
certificates were made in a registered public offering under the
Securities Act of 1933. In the Department's view, the private
placement memorandum must contain sufficient information to permit
plan fiduciaries to make informed investment decisions. For purposes
of this exemption, all references to ``prospectus'' include any
related supplement thereto, and any documents incorporated by
reference therein, pursuant to which certificates are offered to
investors.
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(3) The addition of new receivables or designation of new accounts,
or the removal of receivables in previously-designated accounts, meets
the terms and conditions for such additions, designations or removals
as are described in the prospectus or private placement memorandum for
such certificates, which terms and conditions have been approved by
Standard & Poor's Ratings Services, Moody's Investors Service, Inc.,
Duff & Phelps Credit Rating Co., or Fitch IBCA, Inc., or their
successors (collectively, the Rating Agencies), and does not result in
the certificates receiving a lower credit rating from the Rating
Agencies than the then current rating of the certificates; and
(4) The series of which the certificates are a part will be subject
to an ``Economic Pay Out Event'' (as defined in Section III.BB.), which
is set forth in the pooling and servicing agreement and described in
the prospectus or private placement memorandum associated with the
series, the occurrence of which will cause any revolving period,
scheduled amortization period or scheduled accumulation period
applicable to the certificates to end, and principal collections to be
applied to
[[Page 17022]]
monthly payments of principal to, or the accumulation of principal for
the benefit of, the certificateholders of such series until the earlier
of payment in full of the outstanding principal amount of the
certificates of such series or the series termination date specified in
the prospectus or private placement memorandum.
Notwithstanding the foregoing, Section I.C. does not provide an
exemption from the restrictions of section 406(b) of the Act, or from
the taxes imposed under section 4975(a) and (b) of the Code, by reason
of section 4975(c)(1) (E) or (F) of the Code, for the receipt of a fee
by the servicer of the trust, in connection with the servicing of the
receivables and the operation of the trust, from a person other than
the trustee or sponsor, unless such fee constitutes a ``qualified
administrative fee'' as defined in Section III.U. below.
D. The restrictions of sections 406(a) and 407(a) of the Act and
the taxes imposed by sections 4975 (a) and (b) of the Code, by reason
of sections 4975(c)(1) (A) through (D) of the Code, shall not apply to
any transaction to which those restrictions or taxes would otherwise
apply merely because a person is deemed to be a party in interest or
disqualified person (including a fiduciary) with respect to a plan by
virtue of providing services to the plan (or by virtue of having a
relationship to such service provider as described in section 3(14)
(F), (G), (H) or (I) of the Act or section 4975(e)(2) (F), (G), (H) or
(I) of the Code), solely because of the plan's ownership of
certificates.
Section II--General Conditions
A. The relief provided under Section I is available only if the
following conditions are met:
(1) The acquisition of certificates by a plan is on terms
(including the certificate price) that are at least as favorable to the
plan as such terms would be in an arm's-length transaction with an
unrelated party;
(2) The rights and interests evidenced by the certificates are not
subordinated to the rights and interests evidenced by other
certificates of the same trust;
(3) The certificates acquired by the plan have received a rating at
the time of such acquisition that is either: (i) In one of the two
highest generic rating categories from any one of the Rating Agencies;
or (ii) for certificates with a duration of one year or less, the
highest short-term generic rating category from any one of the Rating
Agencies; provided that, notwithstanding such ratings, this exemption
shall apply to a particular class of certificates only if such class
(an Exempt Class) is at the time of such acquisition part of a series
in which credit support is provided to the Exempt Class through a
senior-subordinated series structure or other form of third-party
credit support which, at a minimum, represents five (5) percent of the
outstanding principal balance of certificates issued for the Exempt
Class, so that an investor in the Exempt Class will not bear the
initial risk of loss;
(4) The trustee is not an affiliate of any other member of the
Restricted Group. However, the trustee shall not be considered to be an
affiliate of a servicer solely because the trustee has succeeded to the
rights and responsibilities of the servicer pursuant to the terms of a
pooling and servicing agreement providing for such succession upon the
occurrence of one or more events of default by the servicer;
(5) The sum of all payments made to and retained by the
underwriters in connection with the distribution or placement of
certificates represents not more than reasonable compensation for
underwriting or placing the certificates; the consideration received by
the sponsor as a consequence of the assignment of receivables (or
interests therein) to the trust, to the extent allocable to the class
of certificates purchased by a plan, represents not more than the fair
market value of such receivables (or interests); and the sum of all
payments made to and retained by the servicer, to the extent allocable
to the class of certificates purchased by a plan, represents not more
than reasonable compensation for the servicer's services under the
pooling and servicing agreement and reimbursement of the servicer's
reasonable expenses in connection therewith;
(6) The plan investing in such certificates is an ``accredited
investor'' as defined in Rule 501(a)(1) of Regulation D of the
Securities and Exchange Commission (SEC) under the Securities Act of
1933;
(7) The trustee of the trust is a substantial financial institution
or trust company experienced in trust activities and is familiar with
its duties, responsibilities, and liabilities as a fiduciary under the
Act (i.e. ERISA). The trustee, as the legal owner of, or holder of a
perfected security interest in, the receivables in the trust, enforces
all the rights created in favor of certificateholders of such trust,
including plans;
(8) Prior to the issuance by the trust of any new series,
confirmation is received from the Rating Agencies that such issuance
will not result in the reduction or withdrawal of the then current
rating of the certificates held by any plan pursuant to this exemption;
(9) To protect against fraud, chargebacks or other dilution of the
receivables in the trust, the pooling and servicing agreement and the
Rating Agencies require the sponsor to maintain a seller interest of
not less than 2 percent of the principal balance of the receivables
contained in the trust;
(10) Each receivable added to a trust is an eligible receivable,
based on criteria of the relevant Rating Agency(ies) and as specified
in the pooling and servicing agreement. The pooling and servicing
agreement requires that any change in the terms of the cardholder
agreements must be made applicable to the comparable segment of
accounts owned or serviced by the sponsor which are part of the same
program or have the same or substantially similar characteristics;
(11) The pooling and servicing agreement limits the number of the
sponsor's newly originated accounts to be designated to the trust,
unless the Rating Agencies otherwise consent in writing, to the
following: (i) With respect to any three-month period, 15 percent of
the number of existing accounts designated to the trust as of the first
day of such period, and (ii) with respect to any twelve-month period,
20 percent of the number of existing accounts designated to the trust
as of the first day of such twelve-month period;
(12) The pooling and servicing agreement requires the sponsor to
deliver an opinion of counsel semi-annually confirming the validity and
perfection of each transfer of receivables in newly originated accounts
to the trust if such opinion is not delivered with respect to each
interim addition;
(13) The pooling and servicing agreement requires the sponsor and
the trustee to receive confirmation from a Rating Agency that no
Ratings Effect (i) will result from a proposed transfer of receivables
in newly originated accounts to the trust, or (ii) will have resulted
from the transfer of receivables in all newly originated accounts added
to the trust during the preceding three-month period (beginning at
quarterly intervals specified in the pooling and servicing agreement
and ending in the calendar month prior to the date such confirmation is
issued), provided that a Rating Agency confirmation shall not be
required under clause (ii) for any three-month period in which any
additions of newly originated accounts occurred only after receipt of
prior Rating Agency confirmation pursuant to clause (i);
(14) If a particular class of certificates held by any plan
involves a Ratings
[[Page 17023]]
Dependent or Non-Ratings Dependent Swap entered into by the trust, then
each particular swap transaction relating to such certificates:
(a) shall be an Eligible Swap;
(b) shall be with an Eligible Swap Counterparty;
(c) in the case of a Ratings Dependent Swap, shall include as an
early payout event, as specified in the pooling and servicing
agreement, the withdrawal or reduction by any Rating Agency of the swap
counterparty's credit rating below a level specified by the Rating
Agency where the servicer (as agent for the trustee) has failed, for a
specified period after such rating withdrawal or reduction, to meet its
obligation under the pooling and servicing agreement to:
(i) obtain a replacement swap agreement with an Eligible Swap
Counterparty which is acceptable to the Rating Agency and the terms of
which are substantially the same as the current swap agreement (at
which time the earlier swap agreement shall terminate); or
(ii) cause the swap counterparty to establish any collateralization
or other arrangement satisfactory to the Rating Agency such that the
then current rating by the Rating Agency of the particular class of
certificates will not be withdrawn or reduced;
(d) in the case of a Non-Ratings Dependent Swap, shall provide
that, if the credit rating of the swap counterparty is withdrawn or
reduced below the lowest level specified in Section III.II. hereof, the
servicer, as agent for the trustee, shall within a specified period
after such rating withdrawal or reduction:
(i) obtain a replacement swap agreement with an Eligible Swap
Counterparty, the terms of which are substantially the same as the
current swap agreement (at which time the earlier swap agreement shall
terminate); or
(ii) cause the swap counterparty to post collateral with the
trustee of the trust in an amount equal to all payments owed by the
counterparty if the swap transaction were terminated; or
(iii) terminate the swap agreement in accordance with its terms;
and
(e) shall not require the trust to make any termination payments to
the swap counterparty (other than a currently scheduled payment under
the swap agreement) except from ``Excess Finance Charge Collections''
(as defined below in Section III.LL.) or other amounts that would
otherwise be payable to the servicer or the seller; and
(15) Any class of certificates, to which one or more swap
agreements entered into by the trust applies, may be acquired or held
in reliance upon this exemption only by Qualified Plan Investors.
B. Neither any underwriter, sponsor, trustee, servicer, insurer,
nor any obligor, unless it or any of its affiliates has discretionary
authority or renders investment advice with respect to the plan assets
used by a plan to acquire certificates, shall be denied the relief
provided under Section I, if the provision in Section II.A.(6) above is
not satisfied for the acquisition or holding by a plan of such
certificates, provided that:
(1) Such condition is disclosed in the prospectus or private
placement memorandum; and
(2) In the case of a private placement of certificates, the trustee
obtains a representation from each initial purchaser which is a plan
that it is in compliance with such condition, and obtains a covenant
from each initial purchaser to the effect that, so long as such initial
purchaser (or any transferee of such initial purchaser's certificates)
is required to obtain from its transferee a representation regarding
compliance with the Securities Act of 1933, any such transferees shall
be required to make a written representation regarding compliance with
the condition set forth in Section II.A.(6).
Section III--Definitions
For purposes of this exemption:
A. Certificate means a certificate:
(1) That (i) represents a beneficial ownership interest in the
assets of a trust and entitles the holder to payments denominated as
principal, interest and/or other payments made as described in the
applicable prospectus or private placement memorandum and in accordance
with the pooling and servicing agreement in connection with the assets
of such trust, to the extent allocable to the series of certificates
purchased by a plan, either currently or after a revolving period
during which principal payments on assets of the trust are reinvested
in new assets, or (ii) is denominated as a debt instrument that
represents a regular interest in a financial asset securitization
investment trust (FASIT), within the meaning of section 860L(a) of the
Code, and is issued by and is an obligation of the trust.
For purposes of this exemption, references to ``certificates
representing an interest in a trust'' include certificates denominated
as debt which are issued by a trust; and
(2) With respect to which (a) MBNA or any of its affiliates is the
sponsor, and (b) MBNA, any of its affiliates, or an ``underwriter'' (as
defined in Section III.C.) is the sole underwriter or the manager or
co-manager of the underwriting syndicate or a selling or placement
agent.
B. Trust means an investment pool, the corpus of which is held in
trust and consists solely of:
(1) Either
(a) Receivables (as defined in Section III.V.); or
(b) Participations in a pool of receivables (as defined in Section
III.V.) where such beneficial ownership interests are not subordinated
to any other interest in the same pool of receivables; 4
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\4\ The Department notes that no relief would be available under
the exemption if the participation interests held by the trust were
subordinated to the rights and interests evidenced by other
participation interests in the same pool of receivables.
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(2) Property which has secured any of the assets described in
Section III.B.(1); 5
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\5\ MBNA states that it is possible for credit card receivables
to be secured by bank account balances or security interests in
merchandise purchased with credit cards. Thus, the exemption should
permit foreclosed property to be an eligible trust asset.
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(3) Undistributed cash or permitted investments made therewith
maturing no later than the next date on which distributions are to be
made to certificateholders, except during a Revolving Period (as
defined herein) when permitted investments are made until such cash can
be reinvested in additional receivables described in paragraph (a) of
this Section III.B.(1);
(4) Rights of the trustee under the pooling and servicing
agreement, and rights under any cash collateral accounts, insurance
policies, third-party guarantees, contracts of suretyship and other
credit support arrangements for any certificates, swap transactions, or
under any yield supplement agreements,6 yield maintenance
agreements or similar arrangements; and
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\6\ In a series involving an accumulation period (as defined in
Section III.Z.), a yield supplement agreement may be used by the
Trust to make up the difference between (i) the reinvestment yield
on permitted investments, and (ii) the interest rate on the
certificates of that series.
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(5) Rights to receive interchange fees received by the sponsor as
partial compensation for the sponsor's taking credit risk, absorbing
fraud losses and funding receivables for a limited period prior to
initial billing with respect to accounts designated to the trust.
Notwithstanding the foregoing, the term ``trust'' does not include
any investment pool unless: (i) the investment pool consists only of
receivables of the type which have been included in other investment
pools; (ii) certificates evidencing interests in such other investment
pools have been rated in one of the two highest generic rating
[[Page 17024]]
categories by at least one of the Rating Agencies for at least one year
prior to the plan's acquisition of certificates pursuant to this
exemption; and (iii) certificates evidencing an interest in such other
investment pools have been purchased by investors other than plans for
at least one year prior to the plan's acquisition of certificates
pursuant to this exemption.
C. Underwriter means an entity which has received from the
Department an individual prohibited transaction exemption which
provides relief for the operation of asset pool investment trusts that
issue asset-backed pass-through securities to plans that is similar in
format and substance to this exemption (each, an Underwriter
Exemption); 7 any person directly or indirectly, through one
or more intermediaries, controlling, controlled by or under common
control with such entity; and any member of an underwriting syndicate
or selling group of which such firm or affiliated person described
above is a manager or co-manager with respect to the certificates.
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\7\ For a listing of Underwriter Exemptions, see the description
provided in the text of the operative language of Prohibited
Transaction Exemption (PTE) 97-34 (62 FR 39021, July 21, 1997).
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D. Sponsor means MBNA, or an affiliate of MBNA that organizes a
trust by transferring credit card receivables or interests therein to
the trust in exchange for certificates.
E. Master Servicer means MBNA or an affiliate that is a party to
the pooling and servicing agreement relating to trust assets and is
fully responsible for servicing, directly or through subservicers, the
receivables in the trust pursuant to the pooling and servicing
agreement.
F. Subservicer means MBNA or an affiliate of MBNA, or an entity
unaffiliated with MBNA which, under the supervision of and on behalf of
the master servicer, services receivables contained in the trust, but
is not a party to the pooling and servicing agreement.
G. Servicer means MBNA or an affiliate which services receivables
contained in the trust, including the master servicer and any
subservicer or their successors pursuant to the pooling and servicing
agreement.
H. Trustee means an entity which is independent of MBNA and its
affiliates and is the trustee of the trust. In the case of certificates
which are denominated as debt instruments, ``trustee'' also means the
trustee of the indenture trust.
I. Insurer means the insurer or guarantor of, provider of other
credit support for, or other contractual counterparty of, a trust.
Notwithstanding the foregoing, a swap counterparty is not an insurer,
and a person is not an insurer solely because it holds securities
representing an interest in a trust which are of a class subordinated
to certificates representing an interest in the same trust.
J. Obligor means any person, other than the insurer, that is
obligated to make payments with respect to any receivable included in
the trust.
K. Excluded Plan means any plan with respect to which any member of
the Restricted Group is a ``plan sponsor'' within the meaning of
section 3(16)(B) of the Act.
L. Restricted Group with respect to a class of certificates means:
(1) Each underwriter;
(2) Each insurer;
(3) The sponsor;
(4) The trustee;
(5) Each servicer;
(6) Each swap counterparty;
(7) Any obligor with respect to receivables contained in the trust
constituting more than 0.5 percent of the fair market value of the
aggregate undivided interest in the trust allocated to the certificates
of a series, determined on the date of the initial issuance of such
series of certificates by the trust; or
(8) Any affiliate of a person described in Section III.L.(1)-(7).
M. Affiliate of another person includes:
(1) Any person directly or indirectly, through one or more
intermediaries, controlling, controlled by, or under common control
with such other person;
(2) Any officer, director, partner, employee, relative (as defined
in section 3(15) of the Act), a brother, a sister, or a spouse of a
brother or sister of such other person; and
(3) Any corporation or partnership of which such other person is an
officer, director or partner.
N. Control means the power to exercise a controlling influence over
the management or policies of a person other than an individual.
O. A person will be independent of another person only if:
(1) Such person is not an affiliate of that other person; and
(2) The other person, or an affiliate thereof, is not a fiduciary
who has investment management authority or renders investment advice
with respect to any assets of such person.
P. Sale includes the entrance into a forward delivery commitment
(as defined in Section III.Q. below), provided that:
(1) The terms of the forward delivery commitment (including any fee
paid to the investing plan) are no less favorable to the plan than they
would be in an arm's length transaction with an unrelated party;
(2) The prospectus or private placement memorandum is provided to
an investing plan prior to the time the plan enters into the forward
delivery commitment; and
(3) At the time of the delivery, all conditions of this exemption
applicable to sales are met.
Q. Forward Delivery Commitment means a contract for the purchase or
sale of one or more certificates to be delivered at an agreed future
settlement date. The term includes both mandatory contracts (which
contemplate obligatory delivery and acceptance of the certificates) and
optional contracts (which give one party the right but not the
obligation to deliver certificates to, or demand delivery of
certificates from, the other party).
R. Reasonable Compensation has the same meaning as that term is
defined in 29 CFR section 2550.408c-2.
S. Pooling and Servicing Agreement means the agreement or
agreements among a sponsor, a servicer and the trustee establishing a
trust and any supplement thereto pertaining to a particular series of
certificates. In the case of certificates which are denominated as debt
instruments, ``pooling and servicing agreement'' also includes the
indenture entered into by the trustee of the trust issuing such
certificates and the indenture trustee.
T. Series means an issuance of a class or various classes of
certificates by the trust all on the same date pursuant to the same
pooling and servicing agreement, and any supplement thereto and
restrictions therein.
U. Qualified Administrative Fee means a fee which meets the
following criteria:
(1) The fee is triggered by an act or failure to act by the obligor
other than the normal timely payment of amounts owing with respect to
the receivables;
(2) The servicer may not charge the fee absent the act or failure
to act referred to in (1);
(3) The ability to charge the fee, the circumstances in which the
fee may be charged, and an explanation of how the fee is calculated are
set forth in the pooling and servicing agreement or described in all
material respects in the prospectus or private placement memorandum
provided to the plan before it purchases certificates issued by the
trust; and
(4) The amount paid to investors in the trust is not reduced by the
amount of any such fee waived by the servicer.
V. Receivables means secured or unsecured obligations of credit
card holders which have arisen or arise in
[[Page 17025]]
Accounts designated to a trust. Such obligations represent amounts
charged by cardholders for merchandise and services and amounts
advanced as cash advances, as well as periodic finance charges, annual
membership fees, cash advance fees, late charges on amounts charged for
merchandise and services and certain other fees (such as bad check
fees, cash advance fees, and other fees specified in the cardholder
agreements) designated by card issuers (other than a qualified
administrative fee as defined in Section III.U.).
W. Accounts are revolving credit card accounts serviced by MBNA or
an affiliate, which were originated or purchased by MBNA or an
affiliate, and are designated to a trust such that receivables arising
in such accounts become assets of the trust.
X. Revolving Period means a period of time, as specified in the
pooling and servicing agreement, during which principal collections
allocated to a series are reinvested in newly generated receivables
arising in the accounts.
Y. Amortization Period means a period of time specified in the
pooling and servicing agreement during which a portion of the principal
collections allocated to a series will commence to be paid to the
certificateholders of such series in installments.
Z. Accumulation Period means a period of time specified in the
pooling and servicing agreement during which a portion of the principal
collections allocated to a series will be deposited in an account to be
distributed to certificateholders in a lump sum on the expected
maturity date.
AA. Pay Out Event means any of the events specified in the pooling
and servicing agreement or supplement thereto that results (in some
instances without further affirmative action by any party) in the early
commencement of either an amortization period or an accumulation
period, including (1) the failure of the sponsor or the servicer,
whichever is subject to the relevant obligation under the pooling and
servicing agreement, (i) to make any payment or deposit required under
the pooling and servicing agreement within five (5) business days after
such payment or deposit was required to be made, or (ii) to observe or
perform any of its other covenants or agreements set forth in the
pooling and servicing agreement, which failure has a material adverse
effect on holders of investor certificates of the relevant series and
continues unremedied for 60 days; (2) a breach of any representation or
warranty made by the sponsor or the servicer in the pooling and
servicing agreement that continues to be incorrect in any material
respect for 60 days; (3) the occurrence of certain bankruptcy events
relating to the sponsor or the servicer; (4) the failure by the sponsor
to convey to the trust additional receivables to maintain the minimum
seller interest that is required by the pooling and servicing agreement
and the Rating Agencies; (5) the failure to pay in full amounts owing
to investors on the expected maturity date; and (6) the Economic Pay
Out Event.
BB. An Economic Pay Out Event occurs automatically when the
portfolio yield for any series of certificates, averaged over three
consecutive months (or such other period approved by one of the Rating
Agencies) is less than the base rate of the series averaged over the
same period. Portfolio yield for a series of certificates for any
period is equal to the sum of the finance charge collections and other
amounts treated as finance charge collections less total defaults for
the series divided by the outstanding principal balance of the investor
certificates of the series, or such other measure approved by one of
the Rating Agencies. The base rate for a series of certificates for any
period is the sum of (i) amounts payable to certificateholders of the
series with respect to interest, (ii) servicing fees allocable to the
series payable to the servicer, and (iii) any credit enhancement fee
allocable to the series payable to a third party credit enhancer,
divided by the outstanding principal balance of the investor
certificates of the series, or such other measure approved by one of
the Rating Agencies.
CC. CCA or Cash Collateral Account means that certain account
established in the name of the trustee that serves as credit
enhancement with respect to the investor certificates and holds cash
and/or permitted investments (as defined below in Section III.KK.)
which conform to applicable provisions of the pooling and servicing
agreement.
DD. Group means a group of any number of series offered by the
trust that share finance charge and/or principal collections in the
manner described in the applicable prospectus or private placement
memorandum.
EE. Ratings Effect means the reduction or withdrawal by a Rating
Agency of its then current rating of the certificates held by any plan
pursuant to this exemption.
FF. Principal Receivables Discount means, with respect to any
account designated by the sponsor, the portion of the related principal
receivables that represents a discount from the face value thereof and
that is treated under the pooling and servicing agreement as finance
charge receivables.
GG. Ratings Dependent Swap means an interest rate swap, or (if
purchased by or on behalf of the trust) an interest rate cap contract,
that is part of the structure of a series of certificates where the
rating assigned by the Rating Agency to any senior class of
certificates held by any plan is dependent on the terms and conditions
of the swap and the rating of the swap counterparty, and if such
certificate rating is not dependent on the existence of the swap and
rating of the swap counterparty, such swap or cap shall be referred to
as a ``Non-Ratings Dependent Swap''. With respect to a Non-Ratings
Dependent Swap, each Rating Agency rating the certificates must
confirm, as of the date of issuance of the certificates by the trust,
that entering into an Eligible Swap with such counterparty will not
affect the rating of the certificates.
HH. Eligible Swap means a Ratings Dependent or Non-Ratings
Dependent Swap:
(1) which is denominated in U.S. Dollars;
(2) pursuant to which the trust pays or receives, on or immediately
prior to the respective payment or distribution date for the senior
class of certificates, a fixed rate of interest, or a floating rate of
interest based on a publicly available index (e.g. LIBOR or the U.S.
Federal Reserve's Cost of Funds Index (COFI)), with the trust receiving
such payments on at least a quarterly basis and obligated to make
separate payments no more frequently than the swap counterparty, with
all simultaneous payments being netted;
(3) which has a notional amount that does not exceed either (i) the
certificate balance of the class of certificates to which the swap
relates, or (ii) the portion of the certificate balance of such class
represented by receivables;
(4) which is not leveraged (i.e. payments are based on the
applicable notional amount, the day count fractions, the fixed or
floating rates designated in subparagraph (2) above, and the difference
between the products thereof, calculated on a one to one ratio and not
on a multiplier of such difference);
(5) which has a final termination date that is the earlier of the
date on which the trust terminates or the related class of certificates
is fully repaid; and
(6) which does not incorporate any provision which could cause a
unilateral alteration in any provision described in subparagraphs (1)
through (4) above without the consent of the trustee.
II. Eligible Swap Counterparty means a bank or other financial
institution which has a rating, at the date of
[[Page 17026]]
issuance of the certificates by the trust, which is in one of the three
highest long-term credit rating categories, or one of the two highest
short-term credit rating categories, utilized by at least one of the
Rating Agencies rating the certificates; provided that, if a swap
counterparty is relying on its short-term rating to establish
eligibility hereunder, such counterparty must either have a long-term
rating in one of the three highest long-term rating categories or not
have a long-term rating from the applicable Rating Agency, and provided
further that if the senior class of certificates with which the swap is
associated has a final maturity date of more than one year from the
date of issuance of the certificates, and such swap is a Ratings
Dependent Swap, the swap counterparty is required by the terms of the
swap agreement to establish any collateralization or other arrangement
satisfactory to the Rating Agencies in the event of a ratings downgrade
of the swap counterparty.
JJ. Qualified Plan Investor means a plan investor or group of plan
investors on whose behalf the decision to purchase certificates is made
by an appropriate independent fiduciary that is qualified to analyze
and understand the terms and conditions of any swap transaction used by
the trust and the effect such swap would have upon the credit ratings
of the certificates. For purposes of the exemption, such a fiduciary is
either:
(1) A qualified professional asset manager (QPAM),8 as
defined under Part V(a) of PTE 84-14 (49 FR 9494, 9506, March 13,
1984);
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\8\ PTE 84-14 provides a class exemption for transactions
between a party in interest with respect to an employee benefit plan
and an investment fund (including either a single customer or pooled
separate account) in which the plan has an interest, and which is
managed by a QPAM, provided certain conditions are met. QPAMs (e.g.
banks, insurance companies, registered investment advisers with
total client assets under management in excess of $50 million) are
considered to be experienced investment managers for plan investors
that are aware of their fiduciary duties under ERISA.
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(2) An in-house asset manager (INHAM),9 as defined under
Part IV(a) of PTE 96-23 (61 FR 15975, 15982, April 10, 1996); or
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\9\ PTE 96-23 permits various transactions involving employee
benefit plans whose assets are managed by an INHAM, an entity which
is generally a subsidiary of an employer sponsoring the plan which
is a registered investment adviser with management and control of
total assets attributable to plans maintained by the employer and
its affiliates which are in excess of $50 million.
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(3) A plan fiduciary with total assets under management of at least
$100 million at the time of the acquisition of such certificates.
KK. Permitted Investments means investments that either (i) are
direct obligations of, or obligations fully guaranteed as to timely
payment of principal and interest by, the United States or any agency
or instrumentality thereof, provided that such obligation is backed by
the full faith and credit of the United States, or (ii) have been rated
(or the obligor thereof has been rated) in one of the three highest
generic rating categories by a Rating Agency; are described in the
pooling and servicing agreement; and are permitted by the relevant
Rating Agency(ies).
LL. Excess Finance Charge Collections means, as of any day funds
are distributed from the trust, the amount by which the finance charge
collections allocated to certificates of a series exceed the amount
necessary to pay certificate interest, servicing fees and expenses, to
satisfy cardholder defaults or charge-offs, and to reinstate credit
support.
The Department notes that this exemption is included within the
meaning of the term ``Underwriter Exemption'' as it is defined in
Section V(h) of the Grant of the Class Exemption for Certain
Transactions Involving Insurance Company General Accounts, which was
published in the Federal Register on July 12, 1995 (see PTE 95-60, 60
FR 35925).
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption refer to
the notice of proposed exemption (the Proposal) published on January
27, 1998, at 63 FR 4038.
Written Comments and Modifications. The applicant (i.e. MBNA)
submitted certain comments on the text of the Proposal.
With respect to issues of a substantive nature, the applicant
suggested two revisions which are discussed below.
First, MBNA requests that the phrase ``at the time of such
acquisition'' should be inserted immediately following the word ``is''
in the 13th line of Section II.A.(3) of the Proposal (63 FR at 4039,
column 3). In this regard, Section II.A.(3) concerns minimum ratings
for the certificates issued by a trust and the proviso contained
therein requires certain minimum credit support for each Exempt Class
of certificates. MBNA suggests that the proviso with respect to minimum
credit support be changed to clarify that the five (5) percent minimum
only needs to be present at the time of an acquisition of a
certificate.
The Department believes that this modification is consistent with
the requirements of Section II.A.(3) that the certificates acquired by
a plan have received a rating at the time of acquisition that is in one
of the high rating categories discussed therein. The Department notes
that the conditions of this exemption are designed to ensure, among
other things, that certain actions taken by the trust or the sponsor
(i.e. MBNA) do not result in the certificates issued by the trust
receiving a lower credit rating from the Rating Agencies than the then
current rating of the certificates--i.e. a Ratings Effect. For example,
Section II.A.(8) requires that confirmation must be received from the
Rating Agencies that the issuance of any new series of certificates by
the trust will not result in a Ratings Effect. Likewise, Sections
I.C.(3) and II.A.(13) require that the addition of new receivables or
designation of new accounts to the trust must meet terms and conditions
which have been described in the prospectus or private placement
memorandum for the certificates and have been approved by the Rating
Agencies. The pooling and servicing agreements also require
confirmations from the Rating Agencies that such actions will not
result in a Ratings Effect. Therefore, the Department has made MBNA's
suggested modification to the language of Section II.A.(3) with the
understanding that any credit enhancements used by a trust to obtain a
high rating for a particular class of certificates at the time such
certificates are acquired by a plan should be sufficient to avoid any
Ratings Effect on the certificates in the future, and that adverse
changes to the level of minimum credit support required for an Exempt
Class may have a Ratings Effect unless other arrangements satisfactory
to the Rating Agencies are made.
Second, with respect to the definition of the term ``Pay Out
Event'' contained in Section III.AA. of the Proposal, MBNA states that
clause (5) of that definition does not describe a pay out event for
MBNA's securitization transactions for credit card receivables. In this
regard, Section III.AA. of the Proposal contains a nonexclusive list of
seven events which may trigger an early payout to certificateholders.
Clause (5) of the Proposal describes a Pay Out Event as follows:
``* * * if a class of investor certificates is in an
Accumulation Period, the amount on deposit in the accumulation
account in any month is less than the amount required to be on
deposit therein.''
However, MBNA states that a Pay Out Event does not occur with
regard to the amount of principal accumulated each month in the
accumulation account.
[[Page 17027]]
MBNA states further that Clause (6) of Section III.AA. of the Proposal
expresses the operative requirement, i.e., Class A certificateholders
must be repaid the principal amount of their investment by the expected
maturity date. Thus, MBNA represents that the inclusion of Clause (5)
in the Proposal, as described above, should be deleted.
The Department acknowledges the applicant's clarification and has
deleted Clause (5) as it appeared in the definition of the term ``Pay
Out Event'' in the Proposal. Thus, Section III.AA. of the Proposal has
been renumbered to reflect this deletion.
In addition, the applicant submitted a number of comments that
relate to what are described as certain language ``glitches'' in the
Proposal. These are discussed below.
First, MBNA requests that the heading used in the Proposal be
changed to reflect the fact that its headquarters is now located in
Wilmington, Delaware (rather than Newark, Delaware).
Second, with respect to Section I.B.(1) of the Proposal relating to
an obligor for receivables contained in the trust constituting 0.5
percent or less of the fair market value of the obligations or
receivables contained in the aggregate undivided interest in the trust
allocated to the certificates of a series, MBNA states that the
language ``* * * obligations or receivables contained in the * * *'' is
unnecessary and should be deleted from that subsection in order to be
consistent with the description of such an obligor used in the
definition of ``Restricted Group'' in Section III.L.(7).
Third, in Section I.B.(1)(v) of the Proposal, MBNA requests that
the word ``not'' be changed to ``no'' in order to be consistent with
the description in Section I.B.(1)(iv).
Fourth, MBNA requests that the word ``and'' be substituted for the
comma (``,'') used in Section I.B.(2) of the Proposal.
Fifth, MBNA requests that the word ``for'' be substituted for the
word ``of'' in the 8th line of Section I.C.(3) of the Proposal (see 63
FR at 4039, column 2).
Sixth, MBNA states that Section I.C.(3) and footnote 10 of the
Proposal should be revised to reflect the change in Fitch's formal name
to ``Fitch IBCA, Inc.''
Seventh, MBNA states that in Section I.C.(4), the cross reference
to the definition of an ``Economic Pay Out Event'' should be changed
from Section III.X. to Section III.BB.
Eighth, MBNA requests that the word ``class'' should be substituted
for the word ``series'' in the 11th and 17th lines of Section II.A.(5)
of the Proposal (see 63 FR at 4040, column 1).
Ninth, MBNA requests that the words ``receivables in'' be inserted
between the words ``of'' and ``newly'' in lines 5-6 of Section
II.A.(12) of the Proposal, as well as in lines 5-6 and 8 of Section
II.A.(13) of the Proposal (see 63 FR at 4040, column 2).
Tenth, MBNA requests that the word ``class'' be substituted for the
word ``series'' in line 1 of Section II.A.(14) of the Proposal and in
Section II.A.(14)(c)(ii) therein (63 FR at 4040, columns 2 and 3).
Eleventh, MBNA requests that the word ``class'' be substituted for
the word ``series'' in Section II.A.(15).
Twelfth, MBNA requests that the word ``assets'' be substituted for
the word ``receivables'' in the 4th (but not the 6th) line of the
definition of ``Master Servicer'' in Section III.E. of the Proposal (63
FR at 4041, column 3).
Thirteenth, MBNA requests that the words ``senior class'' be
substituted for the word ``series'' in the 7th line of the definition
of ``Ratings Dependent Swap'' in Section III.GG. of the Proposal (63 FR
at 4043, column 1).
Fourteenth, MBNA requests that the words ``senior class'' be
substituted for the word ``series'' in the 4th line of the definition
of ``Eligible Swap'' in Section III.HH(2) of the Proposal (63 FR at
4043, column 2).
Fifthteenth, MBNA requests that the words ``senior class'' be
substituted for the word ``series'' in the 18th line of the definition
of ``Eligible Swap Counterparty'' in Section III.II. of the Proposal
(63 FR at 4043, column 3).
The Department acknowledges each of these requested revisions to
the Proposal and has so modified the language of the exemption
contained herein.
Finally, the applicant's comments on the Proposal contained certain
minor clarifications concerning the information included in the Summary
of Facts and Representations for the Proposal. The Department
acknowledges all of the clarifications made by MBNA to this
information.
For further information regarding MBNA's comments or other matters
discussed herein, interested persons are encouraged to obtain a copy of
the exemption application file (No. D-10304) which is available in the
Public Documents Room of the Pension and Welfare Benefits
Administration, U.S. Department of Labor, Room N-5638, 200 Constitution
Avenue, N.W., Washington, D.C. 20210.
No other written comments, and no requests for a hearing, were
received by the Department.
Accordingly, the Department has determined to grant the exemption
as modified herein.
FOR FURTHER INFORMATION CONTACT: Mr. E. F. Williams of the Department,
telephone (202) 219-8194. (This is not a toll-free number.)
Citibank (South Dakota), N.A., Citibank (Nevada), N.A., and
Affiliates Located in North Sioux Falls, South Dakota
[Prohibited Transaction Exemption No. 98-14; Application No. D-10313]
Exemption
Section I--Transactions
A. The restrictions of sections 406(a) and 407(a) of the Act and
the taxes imposed by section 4975(a) and (b) of the Code, by reason of
section 4975(c)(1)(A) through (D) of the Code, shall not apply to the
following transactions involving trusts and certificates evidencing
interests therein:
(1) The direct or indirect sale, exchange or transfer of
certificates in the initial issuance of certificates between the trust,
the sponsor or an underwriter and an employee benefit plan subject to
the Act or section 4975 of the Code (a plan) when the sponsor,
servicer, trustee or insurer of a trust, the underwriter of the
certificates representing an interest in the trust, or an obligor is a
party in interest with respect to such plan;
(2) The direct or indirect acquisition or disposition of
certificates by a plan in the secondary market for such certificates;
and
(3) The continued holding of certificates acquired by a plan
pursuant to Section I.A.(1) or (2).
Notwithstanding the foregoing, Section I.A. does not provide an
exemption from the restrictions of sections 406(a)(1)(E), 406(a)(2) and
407 for the acquisition or holding of a certificate on behalf of an
Excluded Plan, as defined in Section III.K. below, by any person who
has discretionary authority or renders investment advice with respect
to the assets of the Excluded Plan that are invested in
certificates.10
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\10\ Section I.A. provides no relief from sections 406(a)(1)(E),
406(a)(2) and 407 for any person rendering investment advice to an
Excluded Plan within the meaning of section 3(21)(A)(ii) and
regulation 29 CFR 2510.3-21(c).
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B. The restrictions of sections 406(b)(1) and 406(b)(2) of the Act
and the taxes imposed by section 4975(a) and (b) of the Code, by reason
of section 4975(c)(1)(E) of the Code, shall not apply to:
(1) The direct or indirect sale, exchange or transfer of
certificates in the initial issuance of certificates between
[[Page 17028]]
the trust, the sponsor or an underwriter and a plan when the person who
has discretionary authority or renders investment advice with respect
to the investment of plan assets in the certificates is (a) an obligor
with respect to receivables contained in the trust constituting 0.5
percent or less of the fair market value of the aggregate undivided
interest in the trust allocated to the certificates of a series, or (b)
an affiliate of a person described in (a); if
(i) The plan is not an Excluded Plan;
(ii) Solely in the case of an acquisition of certificates in
connection with the initial issuance of the certificates, at least 50
percent of each class of certificates in which plans have invested is
acquired by persons independent of the members of the Restricted Group,
as defined in Section III.L., and at least 50 percent of the aggregate
undivided interest in the trust allocated to the certificates of a
series is acquired by persons independent of the Restricted Group;
(iii) A plan's investment in each class of certificates of a series
does not exceed 25 percent of all of the certificates of that class
outstanding at the time of the acquisition;
(iv) Immediately after the acquisition of the certificates, no more
than 25 percent of the assets of a plan with respect to which the
person has discretionary authority or renders investment advice is
invested in certificates representing the aggregate undivided interest
in a trust allocated to the certificates of a series and containing
receivables sold or serviced by the same entity;11 and
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\11\ For purposes of this exemption, each plan participating in
a commingled fund (such as a bank collective trust fund or insurance
company pooled separate account) shall be considered to own the same
proportionate undivided interest in each asset of the commingled
fund as its proportionate interest in the total assets of the
commingled fund as calculated on the most recent preceding valuation
date of the fund.
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(v) Immediately after the acquisition of the certificates, not more
than 25 percent of the assets of a plan with respect to which the
person has discretionary authority or renders investment advice is
invested in certificates representing an interest in the trust, or
trusts containing receivables sold or serviced by the same entity. For
purposes of paragraphs B.(1)(iv) and B.(1)(v) only, an entity shall not
be considered to service receivables contained in a trust if it is
merely a subservicer of that trust;
(2) The direct or indirect acquisition or disposition of
certificates by a plan in the secondary market for such certificates,
provided that conditions set forth in Section I.B.(1)(i), (iii) through
(v) are met; and
(3) The continued holding of certificates acquired by a plan
pursuant to Section I.B.(1) or (2).
C. The restrictions of sections 406(a), 406(b) and 407(a) of the
Act and the taxes imposed by section 4975(a) and (b) of the Code, by
reason of section 4975(c) of the Code, shall not apply to transactions
in connection with the servicing, management and operation of a trust,
including the reassignment to the sponsor of receivables, the removal
from the trust of accounts previously designated to the trust, the
changing of the underlying terms of accounts designated to the trust,
the adding of new receivables to the trust, the designation of new
accounts to the trust, the retention of a retained interest by the
sponsor in the receivables, the exercise of the right to cause the
commencement of amortization of the principal amount of the
certificates, or the use of any eligible swap transactions, provided:
(1) Such transactions are carried out in accordance with the terms
of a binding pooling and servicing agreement; and
(2) The pooling and servicing agreement is provided to, or
described in all material respects in the prospectus or private
placement memorandum provided to, investing plans before they purchase
certificates issued by the trust;12
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\12\ In the case of a private placement memorandum, such
memorandum must contain substantially the same information that
would be disclosed in a prospectus if the offering of the
certificates were made in a registered public offering under the
Securities Act of 1933. In the Department's view, the private
placement memorandum must contain sufficient information to permit
plan fiduciaries to make informed investment decisions. For purposes
of this exemption, all references to ``prospectus'' include any
related supplement thereto, and any documents incorporated by
reference therein, pursuant to which certificates are offered to
investors.
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(3) The addition of new receivables or designation of new accounts,
or the removal of receivables or previously-designated accounts, meets
the terms and conditions for such additions, designations or removals
as are described in the prospectus or private placement memorandum for
such certificates, which terms and conditions have been approved by
Standard & Poor's Ratings Services, Moody's Investor Service, Inc.,
Duff & Phelps Credit Rating Co., or Fitch Investors Service, L.P., or
their successors (collectively, the Rating Agencies), and does not
result in the certificates receiving a lower credit rating from the
Rating Agencies than the then current rating for the Certificates; and
(4) The series of which the certificates are a part will be subject
to an Economic Early Amortization Event, which is set forth in the
pooling and servicing agreement and described in the prospectus or
private placement memorandum associated with the series, the occurrence
of which will cause any Revolving Period, Controlled Amortization
Period, or Accumulation Period applicable to the certificates to end,
and principal collections to be applied to monthly payments of
principal to, or accumulated for the account of, the certificateholders
of such series until the earlier of: (i) Payment in full of the
outstanding principal amount of such certificates of such series, or
(ii) the series termination date specified in the prospectus or private
placement memorandum.
Notwithstanding the foregoing, Section I.C. does not provide an
exemption from the restrictions of section 406(b) of the Act, or from
the taxes imposed under section 4975(a) and (b) of the Code, by reason
of section 4975(c)(1)(E) or (F) of the Code, for the receipt of a fee
by the servicer of the trust, in connection with the servicing of the
receivables and the operation of the trust, from a person other than
the trustee or sponsor, unless such fee constitutes a ``qualified
administrative fee'' as defined in Section III.S. below.
D. The restrictions of sections 406(a) and 407(a) of the Act and
the taxes imposed by sections 4975(a) and (b) of the Code, by reason of
sections 4975(c)(1)(A) through (D) of the Code, shall not apply to any
transaction to which those restrictions or taxes would otherwise apply
merely because a person is deemed to be a party in interest or
disqualified person (including a fiduciary) with respect to a plan by
virtue of providing services to the plan (or by virtue of having a
relationship to such service provider as described in section 3(14)(F),
(G), (H) or (I) of the Act or section 4975(e)(2)(F), (G), (H) or (I) of
the Code), solely because of the plan's ownership of certificates.
Section II--General Conditions
A. The relief provided under Section I is available only if the
following conditions are met:
(1) The acquisition of certificates by a plan is on terms
(including the certificate price) that are at least as favorable to the
plan as such terms would be in an arm's-length transaction with an
unrelated party;
(2) The rights and interests evidenced by the certificates are not
subordinated to the rights and interests evidenced by other
certificates of the same trust;
[[Page 17029]]
(3) The certificates acquired by the plan have received a rating at
the time of such acquisition that is either: (i) in one of the two
highest generic rating categories from any one of the Rating Agencies;
or (ii) for certificates with a duration of one year or less, the
highest short-term generic rating category from any one of the Rating
Agencies; provided that, notwithstanding such ratings, this exemption
shall apply to a particular class of certificates only if such class
(an Exempt Class) is at the time of such acquisition part of a series
in which credit support is provided to the Exempt Class through a
senior-subordinated series structure or other form of third-party
credit support which, at a minimum, represents five (5) percent of the
outstanding principal balance of certificates issued for the Exempt
Class, so that an investor in the Exempt Class will not bear the
initial risk of loss;
(4) The trustee is not an affiliate of any other member of the
Restricted Group. However, the trustee shall not be considered to be an
affiliate of a servicer solely because the trustee has succeeded to the
rights and responsibilities of the servicer pursuant to the terms of a
pooling and servicing agreement providing for such succession upon the
occurrence of one or more events of default by the servicer;
(5) The sum of all payments made to and retained by the
underwriters in connection with the distribution or placement of
certificates represents not more than reasonable compensation for
underwriting or placing the certificates; the consideration received by
the sponsor as a consequence of the assignment of receivables (or
interests therein) to the trust represents not more than the fair
market value of such receivables (or interests); and the sum of all
payments made to and retained by the servicer, that are allocable to
the series of certificates purchased by a plan, represents not more
than reasonable compensation for the servicer's services under the
pooling and servicing agreement and reimbursement of the servicer's
reasonable expenses in connection therewith;
(6) The plan investing in such certificates is an ``accredited
investor'' as defined in Rule 501(a)(1) of Regulation D of the
Securities and Exchange Commission (SEC) under the Securities Act of
1933;
(7) The trustee of the trust is a substantial financial institution
or trust company experienced in trust activities and is familiar with
its duties, responsibilities, and liabilities as a fiduciary under the
Act (i.e. ERISA). The trustee, as the legal owner of the receivables in
the trust, enforces all the rights created in favor of
certificateholders of such trust, including employee benefit plans
subject to the Act;
(8) Prior to the issuance of any new series in the trust,
confirmation must be received from the Rating Agencies that such
issuance will not result in the reduction or withdrawal of the then
current rating or ratings of the certificates held by any plan pursuant
to this exemption;
(9) To protect against fraud, chargebacks or other dilution of
receivables in the trust, the pooling and servicing agreement and the
Rating Agencies require the sponsor to maintain a seller interest of
not less than the greater of (i) 2 percent of the initial aggregate
principal balance of investor certificates issued by the trust, or (ii)
7 percent of the outstanding aggregate principal balance of investor
certificates issued by the trust;
(10) Each receivable added to the trust will be an eligible
receivable, based on criteria of the Rating Agency and as specified in
the pooling and servicing agreement. The pooling and servicing
agreement requires that any change in the terms of any cardholder
agreements also be made applicable to the comparable segment of
Accounts owned or serviced by the sponsor which are part of the same
program or have the same or substantially similar characteristics;
(11) The pooling and servicing agreement limits the number of the
sponsor's newly originated accounts to be added to the trust, unless
the Rating Agency otherwise affirmatively consents, to the following:
(i) With respect to any three month period, 15 percent of the number of
existing accounts designated to the trust as of the first day of such
period, and (ii) with respect to any calendar year, 20 percent of the
number of existing accounts designated to the trust as of the first day
of such calendar year;
(12) The pooling and servicing agreement requires the sponsor to
deliver an opinion of counsel semi-annually confirming the validity and
perfection of each transfer of newly originated accounts to the trust;
(13) The pooling and servicing agreement requires the sponsor and
the trustee to receive at specified quarterly intervals during the
year, confirmation from a Rating Agency that the addition of all newly
originated accounts added to the trust (during the three month period
ending in the calendar month prior to such confirmation) will not have
resulted in a Ratings Effect;
(14) If a particular series of certificates held by any plan
involves a Ratings Dependent or Non-Ratings Dependent Swap entered into
by the trust, then each particular swap transaction relating to such
certificates:
(a) shall be an Eligible Swap;
(b) shall be with an Eligible Swap Counterparty;
(c) in the case of a Ratings Dependent Swap, shall include as an
early amortization event, as specified in the pooling and servicing
agreement, the withdrawal or reduction by any Rating Agency of the swap
counterparty's credit rating below a level specified by the Rating
Agency where the servicer (as agent for the trustee) has failed, for a
specified period after such rating withdrawal or reduction, to meet its
obligation under the pooling and servicing agreement to:
(i) obtain a replacement swap agreement with an Eligible Swap
Counterparty which is acceptable to the Rating Agency and the terms of
which are substantially the same as the current swap agreement (at
which time the earlier swap agreement shall terminate); or
(ii) cause the swap counterparty to establish any collateralization
or other arrangement satisfactory to the Rating Agency such that the
then current rating by the Rating Agency of the particular class of
certificates will not be withdrawn or reduced;
(d) in the case of a Non-Ratings Dependent Swap, shall provide
that, if the credit rating of the swap counterparty is withdrawn or
reduced below the lowest level specified in Section III.II. hereof, the
servicer (as agent for the trustee) shall within a specified period
after such rating withdrawal or reduction:
(i) obtain a replacement swap agreement with an Eligible Swap
Counterparty, the terms of which are substantially the same as the
current swap agreement (at which time the earlier swap agreement shall
terminate); or
(ii) cause the swap counterparty to post collateral with the
trustee of the trust in an amount equal to all payments owed by the
counterparty if the swap transaction were terminated; or
(iii) terminate the swap agreement in accordance with its terms;
and
(e) shall not require the trust to make any termination payments to
the swap counterparty (other than a currently scheduled payment under
the swap agreement) except from ``Excess Finance Charge Collections''
(as defined below in Section III.LL.) or other amounts that would
otherwise be payable to the servicer or the seller; and
[[Page 17030]]
(15) Any class of certificates which entails one or more swap
agreements entered into by the trust shall be sold only to Qualified
Plan Investors.
B. Neither any underwriter, sponsor, trustee, servicer, insurer, or
any obligor, unless it or any of its affiliates has discretionary
authority or renders investment advice with respect to the plan assets
used by a plan to acquire certificates, shall be denied the relief
provided under Section I, if the provision in Section II.A.(6) above is
not satisfied for the acquisition or holding by a plan of such
certificates, provided that:
(1) Such condition is disclosed in the prospectus or private
placement memorandum; and
(2) In the case of a private placement of certificates, the trustee
obtains a representation from each initial purchaser which is a plan
that it is in compliance with such condition, and obtains a covenant
from each initial purchaser to the effect that, so long as such initial
purchaser (or any transferee of such initial purchaser's certificates)
is required to obtain from its transferee a representation regarding
compliance with the Securities Act of 1933, any such transferees shall
be required to make a written representation regarding compliance with
the condition set forth in Section II.A.(6).
Section III--Definitions
For purposes of this exemption:
A. Certificate means
(1) A certificate:
(a) That represents a beneficial ownership interest in the assets
of a trust;
(b) That entitles the holder to payments denominated as principal
and interest, and/or other payments made in connection with the assets
of such trust, either currently, or after a Revolving Period during
which principal payments on assets in the trust are reinvested in new
assets; or (2) A certificate denominated as a debt instrument that
represents an interest in a financial asset securitization investment
trust (FASIT) within the meaning of section 860L of the Code, and that
is issued by and is an obligation of a trust;
which is sold upon initial issuance by an underwriter (as defined in
Section III.C.) in an underwriting or private placement.
For purposes of this exemption, references to ``certificates
representing an interest in a trust'' include certificates denominated
as debt which are issued by a trust.
B. Trust means an investment pool, the corpus of which is held in
trust and consists solely of:
(1) Either
(a) Receivables (as defined in Section III.T.); or
(b) Participations in a pool of receivables (as defined in Section
III.T.) where such beneficial ownership interests are not subordinated
to any other interest in the same pool of receivables; 13
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\13\ The Department notes that no relief would be available
under the exemption if the participation interests held by the trust
were subordinated to the rights and interests evidenced by other
participation interests in the same pool of receivables.
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(2) Property which has secured any of the assets described in
Section III.B.(1); 14
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\14\ Citibank states that it is possible for credit card
receivables to be secured by bank account balances or security
interests in merchandise purchased with credit cards. Thus, the
exemption should permit foreclosed property to be an eligible trust
asset.
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(3) Undistributed cash or permitted investments made therewith
maturing no later than the next date on which distributions are to be
made to certificateholders, except during a Revolving Period (as
defined herein) when permitted investments are made until such cash can
be reinvested in additional receivables described in paragraph (a) of
this Section III.B.(1);
(4) Rights of the trustee under the pooling and servicing
agreement, and rights under any cash collateral accounts, insurance
policies, third-party guarantees, contracts of suretyship and other
credit support arrangements for any certificates, swap transactions, or
under any yield supplement agreements,15 yield maintenance
agreements or similar arrangements; and
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\15\ In a series involving an accumulation period (as defined in
Section III.AA), a yield supplement agreement may be used by the
Trust to make up the difference between (i) the reinvestment yield
on permitted investments, and (ii) the interest rate on the
certificates of that series.
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(5) Rights to receive interchange fees received by the sponsor as
partial compensation for the sponsor's taking credit risk, absorbing
fraud losses and funding receivables for a limited period prior to
initial billing with respect to accounts designated to the trust.
Notwithstanding the foregoing, the term ``trust'' does not include
any investment pool unless: (i) The investment pool consists only of
receivables of the type which have been included in other investment
pools; (ii) certificates evidencing interests in such other investment
pools have been rated in one of the two highest generic rating
categories by at least one of the Rating Agencies for at least one year
prior to the plan's acquisition of certificates pursuant to this
exemption; and (iii) certificates evidencing an interest in such other
investment pools have been purchased by investors other than plans for
at least one year prior to the plan's acquisition of certificates
pursuant to this exemption.
C. Underwriter means an entity which has received an individual
prohibited transaction exemption from the Department that provides
relief for the operation of asset pool investment trusts that issue
``asset-backed'' pass-through securities to plans, that is similar in
format and structure to this exemption (the Underwriter Exemptions);
16 any person directly or indirectly, through one or more
intermediaries, controlling, controlled by or under common control with
such entity; and any member of an underwriting syndicate or selling
group of which such firm or affiliated person described above is a
manager or co-manager with respect to the certificates.
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\16\ For a listing of the Underwriter Exemptions, see the
description provided in the text of the operative language of
Prohibited Transaction Exemption (PTE) 97-34 (62 FR 39021, July 21,
1997).
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D. Sponsor means Citibank or an affiliate of Citibank that
organizes a trust by transferring credit card receivables or interests
therein to the trust in exchange for certificates.
E. Master Servicer means Citibank or an entity affiliated with
Citibank that is a party to the pooling and servicing agreement
relating to trust receivables and is fully responsible for servicing,
directly or through subservicers, the receivables in the trust pursuant
to the pooling and servicing agreement.
F. Subservicer means Citibank or an affiliate, or an entity
unaffiliated with Citibank, which, under the supervision of and on
behalf of the master servicer, services receivables contained in the
trust, but is not a party to the pooling and servicing agreement.
G. Servicer means Citibank or an affiliate which services
receivables contained in the trust, including the master servicer and
any subservicer or their successors pursuant to the pooling and
servicing agreement.
H. Trustee means an entity which is independent of Citibank and its
affiliates and is the trustee of the trust. In the case of certificates
which are denominated as debt instruments, ``trustee'' also means the
trustee of the indenture trust.
I. Insurer means the insurer or guarantor of, provider of other
credit support for, or other contractual counterparty of, a trust.
Notwithstanding the foregoing, a swap counterparty is not an insurer,
and a person is not an insurer solely because
[[Page 17031]]
it holds securities representing an interest in a trust which are of a
class subordinated to certificates representing an interest in the same
trust.
J. Obligor means any person, other than the insurer, that is
obligated to make payments with respect to any receivable included in
the trust.
K. Excluded Plan means any plan with respect to which any member of
the Restricted Group is a ``plan sponsor'' within the meaning of
section 3(16)(B) of the Act.
L. Restricted Group with respect to a class of certificates means:
(1) Each underwriter;
(2) Each insurer;
(3) The sponsor;
(4) The trustee;
(5) Each servicer;
(6) Each swap counterparty;
(7) Any obligor with respect to receivables contained in the trust
constituting more than 0.5 percent of the fair market value of the
aggregate undivided interest in the trust allocated to the certificates
of a series, determined on the date of the initial issuance of such
series of certificates by the trust; or
(8) Any affiliate of a person described in Section III.L. (1)-(7).
M. Affiliate of another person includes:
(1) Any person directly or indirectly, through one or more
intermediaries, controlling, controlled by, or under common control
with such other person;
(2) Any officer, director, partner, employee, relative (as defined
in section 3(15) of the Act), a brother, a sister, or a spouse of a
brother or sister of such other person; and
(3) Any corporation or partnership of which such other person is an
officer, director or partner.
N. Control means the power to exercise a controlling influence over
the management or policies of a person other than an individual.
O. A person will be independent of another person only if:
(1) Such person is not an affiliate of that other person; and
(2) The other person, or an affiliate thereof, is not a fiduciary
who has investment management authority or renders investment advice
with respect to any assets of such person.
P. Sale includes the entrance into a forward delivery commitment
(as defined in Section III.Q. below), provided:
(1) The terms of the forward delivery commitment (including any fee
paid to the investing plan) are no less favorable to the plan than they
would be in an arm's length transaction with an unrelated party;
(2) The prospectus or private placement memorandum is provided to
an investing plan prior to the time the plan enters into the forward
delivery commitment; and
(3) At the time of the delivery, all conditions of this exemption
applicable to sales are met.
Q. Forward Delivery Commitment means a contract for the purchase or
sale of one or more certificates to be delivered at an agreed future
settlement date. The term includes both mandatory contracts (which
contemplate obligatory delivery and acceptance of the certificates) and
optional contracts (which give one party the right but not the
obligation to deliver certificates to, or demand delivery of
certificates from, the other party).
R. Reasonable Compensation has the same meaning as that term is
defined in 29 CFR section 2550.408c-2.
S. Qualified Administrative Fee means a fee which meets the
following criteria:
(1) The fee is triggered by an act or failure to act by the obligor
other than the normal timely payment of amounts owing with respect to
the receivables;
(2) The servicer may not charge the fee absent the act or failure
to act referred to in (1);
(3) The ability to charge the fee, the circumstances in which the
fee may be charged, and an explanation of how the fee is calculated are
set forth in the pooling and servicing agreement or described in all
material respects in the prospectus or private placement memorandum
provided to the plan before it purchases certificates issued by the
trust; and
(4) The amount paid to investors in the trust is not reduced by the
amount of any such fee waived by the servicer.
T. Receivables means secured or unsecured obligations of credit
card holders which have arisen or arise in Accounts designated to a
trust. Such obligations represent amounts charged by cardholders for
merchandise and services and amounts advanced as cash advances, as well
as periodic finance charges, annual membership fees, cash advance fees,
late charges on amounts charged for merchandise and services and over-
limit fees and fees of a similar nature designated by card issuers
(other than a qualified administrative fee as defined in Section III.S.
above).
U. Accounts are revolving credit card accounts serviced by Citibank
or an affiliate, which were originated or purchased by Citibank or an
affiliate, and are designated to a trust such that receivables arising
in such accounts become assets of the trust.
V. Pooling and Servicing Agreement means the agreement or
agreements among a sponsor, a servicer and the trustee establishing a
trust and any supplement thereto pertaining to a particular series of
certificates. In the case of certificates which are denominated as debt
instruments, ``pooling and servicing agreement'' also includes the
indenture entered into by the trustee of the trust issuing such
certificates and the indenture trustee.
W. Early Amortization Event means the events specified in the
pooling and servicing agreement that result (in some instances without
further affirmative action by any party) in an early amortization of
the certificates, including: (1) The failure of the sponsor or the
servicer (i) to make any payment or deposit required under the pooling
and servicing agreement or supplement thereto within five (5) business
days after such payment or deposit was required to be made, or (ii) to
observe or perform any of its other covenants or agreements set forth
in the pooling and servicing agreement or supplement thereto, which
failure has a material adverse effect on investors and continues
unremedied for 60 days; (2) a breach of any representation or warranty
made by the sponsor or the servicer in the pooling and servicing
agreement or supplement thereto that continues to be incorrect in any
material respect for 60 days; (3) the occurrence of certain bankruptcy
events relating to the sponsor or the servicer; (4) the failure by the
sponsor to convey to the trust additional receivables to maintain the
minimum seller interest that is required by the pooling and servicing
agreement and the Rating Agencies; (5) the failure to pay in full
amounts owing to investors on the expected maturity date; and (6) the
Economic Early Amortization Event.
X. Series means an issuance of a class or various classes of
certificates by the trust all on the same date pursuant to the same
pooling and servicing agreement and any supplement thereto and
restrictions therein.
Y. Revolving Period means a period of time, as specified in the
pooling and servicing agreement, during which principal collections
allocated to a series are reinvested in newly generated receivables.
Z. Controlled Amortization Period means a period of time specified
in the pooling and servicing agreement during which a portion of the
principal collections allocated to a series will commence to be paid to
the certificateholders of such series in installments.
[[Page 17032]]
AA. Accumulation Period means a period of time specified in the
pooling and servicing agreement during which a portion of the principal
collections allocated to a series will be deposited in an account to be
distributed to certificateholders in a lump sum on the expected
maturity date.
BB. CCA or Cash Collateral Account means that certain account,
established by the trustee, that serves as credit enhancement with
respect to the investor certificates and consists of cash deposits and
the proceeds of investments thereon, which investments are permitted
investments, as defined below.
CC. Permitted Investments means investments which: (1) are direct
obligations of, or obligations fully guaranteed as to timely payment of
principal and interest by, the United States or any agency or
instrumentality thereof, provided that such obligation is backed by the
full faith and credit of the United States, or (2) have been rated (or
the obligor has been rated) in one of the three highest generic rating
categories by a Rating Agency; are described in the pooling and
servicing agreement; and are permitted by the Rating Agency.
DD. Group means a group of any number of series offered by the
trust that share finance charge and/or principal collections in the
manner described in the prospectus.
EE. An Economic Early Amortization Event occurs automatically when
finance charge collections averaged over three consecutive months are
less than the total amount payable on the investor certificates,
including (i) amounts payable to, or on behalf of, certificateholders,
with respect to interest, defaults, and chargeoffs, (ii) servicing fees
payable to the servicer, and (iii) any credit enhancement fee payable
to the third-party credit enhancer and allocable to the
certificateholders. With respect to a series to which an Accumulation
Period (as defined above in Section III.AA.) applies, an additional
Economic Early Amortization Event occurs when, for any time during the
Accumulation Period, the yield on the receivables in the Trust is less
than the weighted average of the certificate rates of all series
included in a particular Group within the Trust.
FF. Ratings Effect means the reduction or withdrawal by a Rating
Agency of its then current rating of the investor certificates of any
outstanding series.
GG. Principal Receivables Discount means, with respect to any
account designated by the sponsor, the portion of the related principal
receivables that represents a discount from the face value thereof and
that is treated under the pooling and servicing agreement as finance
charge receivables.
HH. Eligible Swap means an interest rate swap, or (if purchased by
or on behalf of the trust) an interest rate cap, that is part of the
structure of a class of certificates:
(1) which is denominated in U.S. Dollars;
(2) pursuant to which the trust pays or receives on or immediately
prior to the respective payment or distribution date for the class of
certificates, a fixed rate of interest, or a floating rate of interest
based on a publicly available index (e.g. LIBOR or the U.S. Federal
Reserve's Cost of Funds Index (COFI)), with the trust receiving such
payments on at least a quarterly basis and obligated to make separate
payments no more frequently than the swap counterparty, with all
simultaneous payments being netted;
(3) which has a notional amount that does not exceed either (i) the
certificate balance of the class of certificates to which the swap
relates, or (ii) the portion of the certificate balance of such class
represented by receivables;
(4) which is not leveraged, (i.e. payments are based on the
applicable notional amount, the day count fractions, the fixed or
floating rates designated in (2) above, and the difference between the
products thereof, calculated on a one to one ratio and not on a
multiplier of such difference);
(5) which has a termination date that is the earlier of the date on
which the trust terminates or the related class of certificates is
fully repaid; and
(6) which does not incorporate any provision which could cause a
unilateral alteration in a provision described in clauses (1) through
(4) hereof without the consent of the trustee.
II. Eligible Swap Counterparty means a bank or other financial
institution with a rating at the date of issuance of the certificates
by the trust which is in one of the three highest long-term credit
rating categories, or one of the two highest short-term credit rating
categories, utilized by at least one of the Rating Agencies rating the
certificates; provided that, if a swap counterparty is relying on its
short-term rating to establish eligibility hereunder, such counterparty
must either have a long-term rating in one of the three highest long-
term rating categories or not have a long-term rating from the
applicable Rating Agency, and provided further that if the class of
certificates with which the swap is associated has a final maturity
date of more than one year from the date of issuance of the
certificates, and such swap is a Ratings Dependent Swap, the swap
counterparty is required by the terms of the swap to establish any
collateralization or other arrangement satisfactory to the Rating
Agency in the event of a ratings downgrade of the swap counterparty.
JJ. Qualified Plan Investor means a plan investor or group of plan
investors on whose behalf the decision to purchase certificates is made
by an appropriate independent fiduciary that is qualified to analyze
and understand the terms and conditions of any swap transaction used by
the trust and the effect such swap would have upon the credit ratings
of the certificates. For purposes of this exemption, such a fiduciary
is either:
(1) a qualified professional asset manager (QPAM), as defined under
Part V(a) of PTE 84-14 (49 FR 9494, 9506, March 13, 1984);
17
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\17\ PTE 84-14 provides a class exemption for transactions
between a party in interest with respect to an employee benefit plan
and an investment fund (including either a single customer or pooled
separate account) in which the plan has an interest, and which is
managed by a QPAM, provided certain conditions are met. QPAMs (e.g.
banks, insurance companies, registered investment advisers with
total client assets under management in excess of $50 million) are
considered to be experienced investment managers for plan investors
that are aware of their fiduciary duties under ERISA.
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(2) an in-house asset manager (INHAM), as defined under Part IV(a)
of PTE 96-23 (61 FR 15975, 15982, April 10, 1996); 18 or
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\18\ PTE 96-23 permits various transactions involving employee
benefit plans whose assets are managed by an INHAM, an entity which
is generally a subsidiary of an employer sponsoring the plan which
is a registered investment adviser with management and control of
total assets attributable to plans maintained by the employer and
its affiliates which are in excess of $50 million.
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(3) a plan fiduciary with total assets under management of at least
$100 million at the time of the acquisition of such certificates.
KK. Ratings Dependent Swap means an interest rate swap, or (if
purchased by or on behalf of the trust) an interest rate cap contract,
that is part of the structure of a series of certificates where the
rating assigned by the Rating Agency to any senior class of
certificates held by any plan is dependent on the terms and conditions
of the swap and the rating of the swap counterparty, and if such
certificate rating is not dependent on the existence of such swap and
rating of the swap counterparty, such swap or cap shall be referred to
as a ``Non-Ratings Dependent Swap''. With respect to a Non-Ratings
Dependent Swap, each Rating Agency rating the certificates must
confirm, as of the date of issuance of the certificates by the trust,
that
[[Page 17033]]
entering into an Eligible Swap with such counterparty will not affect
the rating of the certificates.
LL. Excess Finance Charge Collections means, as of any day funds
are distributed from the trust, the amount by which the finance charge
collections allocated to certificates of a series exceed the amount
necessary to pay certificate interest, servicing fees and expenses, to
satisfy cardholder defaults or charge-offs, and to reinstate credit
support.
The Department notes that this exemption is included within the
meaning of the term ``Underwriter Exemption'' as it is defined in
Section V(h) of the Grant of the Class Exemption for Certain
Transactions Involving Insurance Company General Accounts, which was
published in the Federal Register on July 12, 1995 (see PTE 95-60, 60
FR 35925).
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption refer to
the notice of proposed exemption (the Proposal) published on January
27, 1998 at 63 FR 4052.
Written Comments and Modifications: The applicant (i.e. Citibank)
submitted certain comments on the text of the Proposal.
First, Section II.A.(3) concerns minimum ratings for the
certificates issued by a trust and the proviso contained therein
requires certain minimum credit support for each Exempt Class of
certificates. Citibank suggests that the proviso with respect to
minimum credit support be changed to clarify that the five (5) percent
minimum only needs to be present at the time of an acquisition of a
certificate.
The Department believes that this modification is consistent with
the requirements of Section II.A.(3) that the certificates acquired by
a plan have received a rating at the time of acquisition that is in one
of the high rating categories discussed therein. In this regard, the
Department notes that the conditions of this exemption are designed to
ensure, among other things, that certain actions taken by the trust or
the trust sponsor (i.e. Citibank) do not result in the certificates
issued by the trust receiving a lower credit rating from the Rating
Agencies than the then current rating of the certificates--i.e. a
Ratings Effect. For example, Section II.A.(8) requires that
confirmation must be received from the Rating Agencies that the
issuance of any new series of certificates by the trust will not result
in a Ratings Effect. Likewise, Sections I.C.(3) and II.A.(13) require
that the addition of new receivables or designation of new accounts to
the trust must meet terms and conditions which have been described in
the prospectus or private placement memorandum for the certificates and
have been approved by the Rating Agencies. The pooling and servicing
agreements also require confirmations from the Rating Agencies that
such actions will not result in a Ratings Effect.19
Therefore, the Department has made Citibank's suggested modification to
the language of Section II.A.(3) with the understanding that any credit
enhancements used by a trust to obtain a high rating for a particular
class of certificates at the time such certificates are acquired by a
plan should be sufficient to avoid any Ratings Effect on the
certificates in the future, and that adverse changes to the level of
minimum credit support required for an Exempt Class may have a Ratings
Effect unless other arrangements satisfactory to the Rating Agencies
are made.
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\19\ See the discussion of a ``Lump Sum Addition'' of
receivables to the trust in Paragraph 7 in the Summary of Facts and
Representations included in the Proposal (63 FR at 4060). See also
Footnote 30 (63 FR at 4061) regarding the satisfaction of certain
conditions required by the Rating Agencies to avoid a Ratings Effect
and judgments that must be made by Citibank that such additions, or
any removals, of accounts will not adversely affect the timing or
amount of payments to certificateholders (referred to in the Series
prospectus as an ``Adverse Effect'').
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Second, with respect to Section II.A.(14)(c) relating to Ratings
Dependent Swaps, Section II.A.(14)(c)(ii) of the Proposal states that
one of the options in the event of a credit ratings downgrade of the
Eligible Swap Counterparty for such swap transactions is to ``* * *
cause the swap counterparty to establish any collateralization or other
arrangement satisfactory to the Rating Agency such that the then
current rating by the Rating Agency of the particular series of
certificates will not be withdrawn or reduced.'' [emphasis added]
Citibank suggests that since a swap transaction by a trust might relate
to only one class of certificates in a series issued by the trust, it
would be more precise to substitute the word ``class'' for ``series''
in Section II.A.(14)(c)(ii).
Similarly, Section II.A.(15) of the Proposal requires that ``* * *
[a]ny Series of certificates which entails one or more swap agreements
entered into by the trust shall be sold only to Qualified Plan
Investors.'' Citibank believes that it would be more precise to
substitute the word ``class'' for ``series'' in Section II.A.(15).
Likewise, in Section III.HH. of the Proposal, the definition of
``Eligible Swap'' contains numerous references to a ``series'' of
certificates to which the swap transaction relates. Citibank believes
that it would be more precise for these references to be changed to a
``class'' of certificates.
The Department agrees with these suggestions and, accordingly, has
modified the language of the final exemption.
Finally, with respect to the definition of the term ``Early
Amortization Event'' contained in Section III.W. of the Proposal,
Citibank notes that there is a nonexclusive list of seven events which
may trigger an early amortization to certificateholders. The fifth
event listed as an early amortization event is as follows:
``* * * if a class of investor certificates is in an
Accumulation Period, the amount on deposit in the accumulation
account in any month is less than the amount required to be on
deposit therein.''
Although such an event was previously described by Citibank as a
possible early amortization ``trigger'', Citibank is now concerned that
the inclusion of this ``event'' in the definition of the term ``early
amortization event'' may be misleading to investors. In this regard,
Citibank states that there is no amount required to be on deposit in
the accumulation account in any particular month, other than that
amount which is required to be in the account in the last month of the
Accumulation Period. Any shortfall in the amount required to be in the
accumulation account in the last month of an Accumulation Period would
be an ``early amortization event''. Such an event was already included
in the list contained in the definition of that term in the Proposal
(see Section III.W.(6) of the Proposal). Thus, Citibank represents that
the inclusion of the fifth event, as described above, is unnecessary
and should be deleted.
The Department acknowledges the applicant's clarification and has
deleted the fifth event described in the definition of the term ``early
amortization event'' as used in the Proposal. Section III.W. of the
final exemption has been renumbered to reflect this deletion.
No other written comments, and no requests for a hearing, were
received by the Department.
Accordingly, the Department has determined to grant the exemption
as modified herein.
FOR FURTHER INFORMATION CONTACT: Mr. E.F. Williams of the Department,
telephone (202) 219-8194. (This is not a toll-free number.)
[[Page 17034]]
Massachusetts Mutual Life Insurance Company (MassMutual), Located
in Springfield, Massachusetts
[Prohibited Transaction Exemption 98-15; Exemption Application No. D-
10436]
Exemption
The restrictions of sections 406(a), 406 (b)(1) and (b)(2) of the
Act and the sanctions resulting from the application of section 4975 of
the Code, by reason of section 4975(c)(1) (A) through (E) of the Code,
shall not apply to (1) The mergers of the following Connecticut Mutual
Life Insurance Company (CML) separate investment accounts (SIAs), the
assets of which include assets of employee benefit plans (the Plans),
into the following Massachusetts Mutual Life Insurance Company
(MassMutual) SIAs: CML Select into MassMutual SIA-A, CML Fixed Income
into MassMutual SIA-E, CML Basis into MassMutual SIA-F, CML Money
Market into MassMutual SIA-G, and CML Overseas into MassMutual SIA-I
(the Merger Transactions); (2) the transfer of Plan assets from CML
Dimensions and CML Converts, after termination of those SIAs, into
MassMutual SIA-E and MassMutual SIA-A, respectively (the Termination
Transfers); and (3) the transfer of Plan assets from CML Life Style
Funds designated as CML Asset Allocation A, CML Asset Allocation B, and
CML Asset Allocation C, after termination of those funds, into
MassMutual SIA-BC, MassMutual SIA-BP, and MassMutual SIA-BA,
respectively (the Life Style Transfers; the Termination Transfers and
the Life Style Transfers are referred to collectively as the Transfer
Transactions); provided the following conditions are met:
(A) At least 30 days prior to the effective date of each Merger and
Transfer Transaction, MassMutual provides to a fiduciary of each Plan
participating in the CML SIAs (the Plan Fiduciary) affected by the
Transaction full written disclosure of information concerning the
proposed Transaction and the affected MassMutual SIAs', including a
current prospectus and a full and detailed written description of the
fees charged by the affected MassMutual SIAs and the funds in which
they invest, the differential between that fee level and the fee level
applicable to the affected CML SIAs and the reasons why MassMutual
believes that the investment is appropriate for the Plans. The notice
will also inform the Plan Fiduciary of the proposed effective date of
the Transaction;
(B) As part of the disclosure required under paragraph (A) of this
exemption, MassMutual notifies the Plan Fiduciary in writing that
instead of participating in the particular Merger or Transfer
Transaction proposed by MassMutual, the Plan Fiduciary may direct that
the assets of the Plan in the affected CML SIA may be transferred,
without penalty, charge or adjustment, to any other available
MassMutual SIA or liquidated, without penalty, charge or adjustment,
for a cash payment to the Plan equal to the fair market value of the
Plan's interest in the affected SIA in lieu of the Plan's participation
in the proposed transaction;
(C) Upon completion of the Merger Transactions, the fair market
value of the interests of each Plan participating in the MassMutual
SIAs immediately following such Merger Transactions equals the fair
market value of such Plan's interest in the affected CML SIAs
immediately before the transactions;
(D) Upon completion of the Transfer Transactions, the fair market
value of the interests of each Plan participating in the MassMutual
SIAs immediately following such Transfer Transactions equals the fair
market value of such Plan's interest in the affected CML SIAs
immediately before the transaction;
(E) The assets of each of the Plans are invested in the same or
similar investment type or asset class before and after the Merger and
Transfer Transactions;
(F) The assets of the CML SIAs will be valued for purposes of the
Merger and Transfer Transactions at the ``independent current market
price'' within the meaning of Rule 17a-7 of the Securities and Exchange
Commission under the Investment Company Act of 1940. The assets of the
CML SIAs being merged or transferred and the assets of the MassMutual
SIAs affected by the merger or transfer will be valued in a single
valuation using the same methodology by the same custodian at the close
of the same business day that the Merger and Transfer Transactions are
effected;
(G) No later than forty five (45) days after the Merger and
Transfer Transactions, each Plan Fiduciary will be provided a written
confirmation of the Transactions which will include a statement of the
number of units held by each Plan in each affected CML SIA, the unit
value of each such CML SIA unit and the aggregate dollar value of such
Plan's CML SIA units, determined immediately prior to the Transactions,
as well as the number of units held by each Plan in each affected
MassMutual SIA, the unit value of each such MassMutual SIA unit, and
the aggregate dollar value of such Plan's MassMutual SIA units,
determined immediately after the Transactions.
(H) Neither MassMutual nor any of its affiliates receives any fees
or commissions in connection with the Merger and Transfer Transactions;
(I) The Plans pay no sales commissions or fees in connection with
the Merger and Transfer Transactions;
(J) The Plans participating in the CML SIAs are not employee
benefit plans sponsored or maintained by MassMutual or CML; and
(K) All assets involved in the transactions are securities for
which market quotations are readily available, or cash.
For a more complete statement of the summary of facts and
representations supporting the Department's decision to grant this
exemption refer to the Notice of Proposed Exemption published on
January 27, 1998 at 63 FR 4068.
FOR FURTHER INFORMATION CONTACT: Ronald Willett of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
Overland, Ordal, Thorson & Fennell Pulmonary Consultants, P.C.
Profit Sharing Plan & Trust (the Plan) Located in Medford, Oregon
[Prohibited Transaction Exemption 98-15; Exemption Application No. D-
10523]
Exemption
The restrictions of sections 406(a), 406(b)(1) and (b)(2) of the
Act and the sanctions resulting from the application of section 4975 of
the Code, by reason of section 4975(c)(1)(A) through (E) of the Code,
shall not apply to the cash sale (the Sale) of a certain parcel of real
property (the Property) by the individually directed account (the
Account) in the Plan of Eric S. Overland, M.D. (Dr. Overland) to Dr.
Overland, provided that the following conditions are met:
(a) The Sale is a one-time transaction for cash;
(b) The terms and conditions of the Sale are at least as favorable
to the Account as those obtainable in an arm's length transaction with
an unrelated party;
(c) The Account receives an amount equal to the average of the two
updated appraisals of the Property as of the date of Sale; and
(d) The Account is not required to pay any commissions, costs or
other expenses in connection with the Sale.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
the notice of the proposed exemption published on February 6, 1998, at
63 FR 6216.
[[Page 17035]]
Written Comments The Department received one written comment from
the representative of the applicant. The comment pertains to the
applicant's original submission of two appraisals of the Property, one
for $90,000 and the other for $120,000. Because of the significant
disparity between the appraisals, the Department determined that the
average of the two, $105,000, most appropriately represented the fair
market value of the Property. The commentator proposes that the
applicant update both appraisals as of the transfer date and suggests
that the fair market value of the Property should be the average of the
two appraisals. The Department is of the view that in this instance,
this method of valuation is appropriate and is hereby adopted for
purposes of this exemption. Accordingly, the language of condition (c)
of the exemption is hereby changed from ``The Account receives the
greater of the fair market value of the Property as of the date of sale
or $105,000,'' to ``The Account receives an amount equal to the average
of the two updated appraisals of the Property as of the date of Sale.''
FOR FURTHER INFORMATION CONTACT: Mr. James Scott Frazier of the
Department, telephone (202) 219-8881. (This is not a toll-free number).
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under section 408(a) of the Act and/or section 4975(c)(2) of the Code
does not relieve a fiduciary or other party in interest or disqualified
person from certain other provisions to which the exemption does not
apply and the general fiduciary responsibility provisions of section
404 of the Act, which among other things require a fiduciary to
discharge his duties respecting the plan solely in the interest of the
participants and beneficiaries of the plan and in a prudent fashion in
accordance with section 404(a)(1)(B) of the Act; nor does it affect the
requirement of section 401(a) of the Code that the plan must operate
for the exclusive benefit of the employees of the employer maintaining
the plan and their beneficiaries;
(2) These exemptions are supplemental to and not in derogation of,
any other provisions of the Act and/or the Code, including statutory or
administrative exemptions and transactional rules. Furthermore, the
fact that a transaction is subject to an administrative or statutory
exemption is not dispositive of whether the transaction is in fact a
prohibited transaction; and
(3) The availability of these exemptions is subject to the express
condition that the material facts and representations contained in each
application accurately describes all material terms of the transaction
which is the subject of the exemption.
Signed at Washington, D.C., this 2nd day of April, 1998.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, Department of Labor.
[FR Doc. 98-9048 Filed 4-6-98; 8:45 am]
BILLING CODE 4510-29-P
