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EBSA Notices

Exemption From Certain Prohibited Transaction Restrictions   [7/9/2013]
[PDF]
Federal Register, Volume 78 Issue 131 (Tuesday, July 9, 2013)
[Federal Register Volume 78, Number 131 (Tuesday, July 9, 2013)]
[Notices]
[Pages 41090-41100]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-16386]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration


Exemption From Certain Prohibited Transaction Restrictions

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Grant of individual exemption.

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SUMMARY: This document contains an exemption issued by the Department 
of Labor (the Department) from certain of the prohibited transaction 
restrictions of the Employee Retirement Income Security Act of 1974 
(ERISA or the Act) and/or the Internal Revenue Code of 1986 (the Code). 
This notice includes the following: 2013-08, Amendment to Prohibited 
Transaction Exemption 2007-05, 72 FR 13130 (March 20, 2007), Involving 
Prudential Securities Incorporated, et al., To Amend the Definition of 
``Rating Agency'', D-11718.

SUPPLEMENTARY INFORMATION: A notice was published in the Federal 
Register of the pendency before the Department of a proposal to grant 
such exemption. The notice set forth a summary of facts and 
representations contained in the application for exemption and referred 
interested persons to the application for a complete statement of the 
facts and representations. The application has been available for 
public inspection at the Department in Washington, DC. The notice also 
invited interested persons to submit comments on the requested 
exemption to the Department. In addition, the notice stated that any 
interested person might submit a written request that a public hearing 
be held (where appropriate). The applicant has represented that it has 
complied with the requirements of the notification to interested 
persons. No requests for a hearing were received by the Department. 
Public comments were received by the Department as described in the 
granted exemption.
    The notice of proposed exemption was issued and the exemption is 
being granted solely by the Department because, effective December 31, 
1978, section 102 of Reorganization Plan No.

[[Page 41091]]

4 of 1978, 5 U.S.C. App. 1 (1996), 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 (76 FR 66637, 66644, October 27, 2011) \1\ and based 
upon the entire record, the Department makes the following findings:
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    \1\ The Department has considered exemption applications 
received prior to December 27, 2011 under the exemption procedures 
set forth in 29 CFR part 2570, subpart B (55 FR 32836, 32847, August 
10, 1990).
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    (a) The exemption is administratively feasible;
    (b) The exemption is in the interests of the plan and its 
participants and beneficiaries; and
    (c) The exemption is protective of the rights of the participants 
and beneficiaries of the plan.

Amendment to Prohibited Transaction Exemption 2007-05, 72 FR 13130 
(March 20, 2007), Involving Prudential Securities Incorporated, et al., 
To Amend the Definition of ``Rating Agency'' [Prohibited Transaction 
Exemption 2013-08; Exemption Application No. D-11718]

Exemption

    In accordance with section 408(a) of the Act and section 4975(c)(2) 
of the Code and the procedures set forth in 29 CFR Part 2570, Subpart B 
(76 FR 66637, 66644, October 27, 2011) and based upon the entire 
record, the Department amends the following individual Prohibited 
Transaction Exemptions (PTEs), as set forth below: PTE 89-88, 54 FR 
42582 (October 17, 1989); PTE 89-89, 54 FR 42569 (October 17, 1989); 
PTE 89-90, 54 FR 42597 (October 17, 1989); PTE 90-22, 55 FR 20542 (May 
17, 1990); PTE 90-23, 55 FR 23144 (June 6, 1990); PTE 90-24, 55 FR 
20548 (May 17, 1990); PTE 90-28, 55 FR 21456 (May 24, 1990); PTE 90-29, 
55 FR 21459 (May 24, 1990); PTE 90-30, 55 FR 21461 (May 24, 1990); PTE 
90-31, 55 FR 23144 (June 6,1990); PTE 90-32, 55 FR 23147 (June 6, 
1990); PTE 90-33, 55 FR 23151 (June 6, 1990); PTE 90-36, 55 FR 25903 
(June 25, 1990); PTE 90-39, 55 FR 27713 (July 5, 1990); PTE 90-59, 55 
FR 36724 (September 6, 1990); PTE 90-83, 55 FR 50250 (December 5, 
1990); PTE 90-84, 55 FR 50252 (December 5, 1990); PTE 90-88, 55 FR 
52899 (December 24, 1990); PTE 91-14, 56 FR 7413 (February 22, 1991); 
PTE 91-22, 56 FR 03277 (April 18, 1991); PTE 91-23, 56 FR 15936 (April 
18, 1991); PTE 91-30, 56 FR 22452 (May 15, 1991); PTE 91-62, 56 FR 
51406 (October 11, 1991); PTE 93-31, 58 FR 28620 (May 5, 1993); PTE 93-
32, 58 FR 28623 (May 14, 1993); PTE 94-29, 59 FR 14675 (March 29, 
1994); PTE 94-64, 59 FR 42312 (August 17, 1994); PTE 94-70, 59 FR 50014 
(September 30, 1994); PTE 94-73, 59 FR 51213 (October 7, 1994); PTE 94-
84, 59 FR 65400 (December 19, 1994); 95-26, 60 FR 17586 (April 6, 
1995); PTE 95-59, 60 FR 35938 (July 12, 1995); PTE 95-89, 60 FR 49011 
(September 21, 1995); PTE 96-22, 61 FR 14828 (April 3, 1996); PTE 96-
84, 61 FR 58234 (November 13, 1996); PTE 96-92, 61 FR 66334 (December 
17, 1996); PTE 96-94, 61 FR 68787 (December 30, 1996); PTE 97-05, 62 FR 
1926 (January 14, 1997); PTE 97-28, 62 FR 28515 (May 23, 1997); PTE 97-
34, 62 FR 39021 (July 21, 1997); PTE 98-08, 63 FR 8498 (February 19, 
1998); PTE 99-11, 64 FR 11046 (March 8, 1999); PTE 2000-19, 65 FR 25950 
(May 4, 2000); PTE 2000-33, 65 FR 37171 (June 13, 2000); PTE 2000-41, 
65 FR 51039 (August 22, 2000); PTE 2000-55, 65 FR 37171 (November 13, 
2000); PTE 2002-19, 67 FR 14979 (March 28, 2002); PTE 2003-31, 68 FR 
59202 (October 14, 2003); PTE 2006-07, 71 FR 32134 (June 2, 2006); PTE 
2008-08, 73 FR 27570 (May 13, 2008); PTE 2009-16, 74 FR 30623 (June 26, 
2009); and PTE 2009-31, 74 FR 59003 (November 16, 2009), each as 
subsequently amended by PTE 97-34, 62 FR 39021 (July 21, 1997) and PTE 
2000-58, 65 FR 67765 (November 13, 2000) and for certain of the 
exemptions, amended by PTE 2002-41, 67 FR 5487 (August 22, 2002) 
(collectively, the Underwriter Exemptions).
    In addition, the Department also notes that it is granting 
individual exemptive relief for: Deutsche Bank AG, New York Branch and 
Deutsche Morgan Grenfell/C.J. Lawrence Inc., Final Authorization Number 
(FAN) 97-03E (December 9, 1996); Credit Lyonnais Securities (USA) Inc., 
FAN 97-21E (September 10, 1997); ABN AMRO Inc., FAN 98-08E (April 27, 
1998); Ironwood Capital Capital Partners Ltd., FAN 99-31E (December 20, 
1999) (supersedes FAN 97-02E (November 25, 1996)); William J. Mayer 
Securities LLC, FAN 01-25E (October 15, 2001); Raymond James & 
Associates Inc. & Raymond James Financial Inc. FAN 03-07E (June 14, 
2003); WAMU Capital Corporation, FAN 03-14E (August 24, 2003); Barclays 
Bank PLC & Barclays Capital Inc., FAN 04-03E (February 4, 2004); Terwin 
Capital LLC, FAN 04-16E (August 18, 2004); BNP Paribas Securities 
Corporation, FAN 07-06E (July 7, 2007); SunTrust Robinson Humphrey, 
Inc., FAN 08-03E (March 10, 2008); Jefferies & Company Inc., FAN 09-03E 
(March 9, 2009); NatCity Investments, Inc., FAN 09-06E (March 28, 
2009); Amherst Securities Group, LLC, FAN 09-12E (September 14, 2009); 
Cantor Fitzgerald & Company, FAN 11-05E (June 6, 2011); and Cortview 
Capital Securities LLC, FAN 11-08E (October 10, 2011); which received 
the approval of the Department to engage in transactions substantially 
similar to the transactions described in the Underwriter Exemptions 
pursuant to PTE 96-62, 67 FR 44622 (July 3, 2002).

I. Transactions

    A. Effective for transactions occurring on or after April 5, 2006, 
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 
section 4975(c)(1)(A) through (D) of the Code shall not apply to the 
following transactions involving Issuers and Securities evidencing 
interests therein:
    (1) The direct or indirect sale, exchange or transfer of Securities 
in the initial issuance of Securities between the Sponsor or 
Underwriter and an employee benefit plan when the Sponsor, Servicer, 
Trustee or Insurer of an Issuer, the Underwriter of the Securities 
representing an interest in the Issuer, or an Obligor is a party in 
interest with respect to such plan;
    (2) The direct or indirect acquisition or disposition of Securities 
by a plan in the secondary market for such Securities; and
    (3) The continued holding of Securities acquired by a plan pursuant 
to subsection 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 of the Act for the acquisition or holding of a Security on behalf 
of an Excluded Plan by any person who has discretionary authority or 
renders investment advice with respect to the assets of that Excluded 
Plan.\2\
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    \2\ Section I.A. provides no relief from sections 406(a)(1)(E), 
406(a)(2) and 407 of the Act for any person rendering investment 
advice to an Excluded Plan within the meaning of section 
3(21)(A)(ii) of the Act, and regulation 29 CFR 2510.3-21(c).
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    B. Effective for transactions occurring on or after April 5, 2006, 
the restrictions of sections 406(b)(1) and 406(b)(2) of the Act and the 
taxes imposed by sections 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 Securities 
in the initial issuance of Securities between

[[Page 41092]]

the Sponsor or 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 Securities is (a) an Obligor with 
respect to 5 percent or less of the fair market value of obligations or 
receivables contained in the Issuer, 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 Securities in 
connection with the initial issuance of the Securities, at least 50 
percent of each class of Securities in which plans have invested is 
acquired by persons independent of the members of the Restricted Group 
and at least 50 percent of the aggregate interest in the Issuer is 
acquired by persons independent of the Restricted Group;
    (iii) A plan's investment in each class of Securities does not 
exceed 25 percent of all of the Securities of that class outstanding at 
the time of the acquisition; and
    (iv) Immediately after the acquisition of the Securities, no more 
than 25 percent of the assets of a plan with respect to which the 
person has discretionary authority or renders investment advice are 
invested in Securities representing an interest in an Issuer containing 
assets sold or serviced by the same entity.\3\ For purposes of this 
paragraph (iv) only, an entity will not be considered to service assets 
contained in an Issuer if it is merely a Subservicer of that Issuer;
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    \3\ For purposes of this Underwriter 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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    (2) The direct or indirect acquisition or disposition of Securities 
by a plan in the secondary market for such Securities, provided that 
the conditions set forth in paragraphs (i), (iii) and (iv) of 
subsection I.B.(1) are met; and
    (3) The continued holding of Securities acquired by a plan pursuant 
to subsection I.B.(1) or (2).
    C. Effective for transactions occurring on or after April 5, 2006, 
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 an Issuer, 
including the use of any Eligible Swap transaction; or the defeasance 
of a mortgage obligation held as an asset of the Issuer through the 
substitution of a new mortgage obligation in a commercial mortgage- 
backed Designated Transaction, provided:
    (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 
Securities issued by the Issuer; \4\ and
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    \4\ 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 securities 
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, 
references to ``prospectus'' include any related prospectus 
supplement thereto, pursuant to which Securities are offered to 
investors.
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    (3) The defeasance of a mortgage obligation and the substitution of 
a new mortgage obligation in a commercial mortgage-backed Designated 
Transaction meet the terms and conditions for such defeasance and 
substitution as are described in the prospectus or private placement 
memorandum for such Securities, which terms and conditions have been 
approved by a Rating Agency and does not result in the Securities 
receiving a lower credit rating from the Rating Agency than the current 
rating of the Securities.

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 by reason of section 4975(c) of the Code for the 
receipt of a fee by a Servicer of the Issuer from a person other than 
the Trustee or Sponsor, unless such fee constitutes a Qualified 
Administrative Fee.

    D. Effective for transactions occurring on or after April 5, 2006, 
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 any 
transactions 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 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 Securities.

II. General Conditions

    A. The relief provided under section I. is available only if the 
following conditions are met:
    (1) The acquisition of Securities by a plan is on terms (including 
the Security price) that are at least as favorable to the plan as they 
would be in an arm's-length transaction with an unrelated party;
    (2) The rights and interests evidenced by the Securities are not 
subordinated to the rights and interests evidenced by other Securities 
of the same Issuer, unless the Securities are issued in a Designated 
Transaction;
    (3) The Securities acquired by the plan have received a rating from 
a Rating Agency at the time of such acquisition that is in one of the 
three (or in the case of Designated Transactions, four) highest generic 
rating categories;
    (4) The Trustee is not an Affiliate of any member of the Restricted 
Group, other than an Underwriter. For purposes of this requirement;
    (a) 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; and
    (b) Subsection II.A.(4) will be deemed satisfied notwithstanding a 
Servicer becoming an Affiliate of the Trustee as the result of a merger 
or acquisition involving the Trustee, such Servicer and/or their 
Affiliates which occurs after the initial issuance of the Securities, 
provided that:
    (i) Such Servicer ceases to be an Affiliate of the Trustee no later 
than six months after the date such Servicer became an Affiliate of the 
Trustee; and
    (ii) Such Servicer did not breach any of its obligations under the 
Pooling and Servicing Agreement, unless such breach was immaterial and 
timely cured in accordance with the terms of such agreement, during the 
period from the closing date of such merger or acquisition transaction 
through the date the Servicer ceased to be an Affiliate of the Trustee;
    (5) The sum of all payments made to and retained by the 
Underwriters in connection with the distribution or placement of 
Securities represents not more than Reasonable Compensation for 
underwriting or placing the Securities; the sum of all payments made to 
and

[[Page 41093]]

retained by the Sponsor pursuant to the assignment of obligations (or 
interests therein) to the Issuer represents not more than the fair 
market value of such obligations (or interests); and the sum of all 
payments made to and retained by the Servicer 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 Securities is an ``accredited 
investor'' as defined in Rule 501(a)(1) of Regulation D of the 
Securities and Exchange Commission under the Securities Act of 1933; 
and
    (7) In the event that the obligations used to fund an Issuer have 
not all been transferred to the Issuer on the Closing Date, additional 
obligations of the types specified in subsection III.B.(1) may be 
transferred to the Issuer during the Pre-Funding Period in exchange for 
amounts credited to the Pre-Funding Account, provided that:
    (a) The Pre-Funding Limit is not exceeded;
    (b) All such additional obligations meet the same terms and 
conditions for determining the eligibility of the original obligations 
used to create the Issuer (as described in the prospectus or private 
placement memorandum and/or Pooling and Servicing Agreement for such 
Securities), which terms and conditions have been approved by a Rating 
Agency.
    Notwithstanding the foregoing, the terms and conditions for 
determining the eligibility of an obligation may be changed if such 
changes receive prior approval either by a majority vote of the 
outstanding securityholders or by a Rating Agency;
    (c) The transfer of such additional obligations to the Issuer 
during the Pre-Funding Period does not result in the Securities 
receiving a lower credit rating from a Rating Agency upon termination 
of the Pre-Funding Period than the rating that was obtained at the time 
of the initial issuance of the Securities by the Issuer;
    (d) The weighted average annual percentage interest rate (the 
average interest rate) for all of the obligations held by the Issuer at 
the end of the Pre-Funding Period will not be more than 100 basis 
points lower than the average interest rate for the obligations which 
were transferred to the Issuer on the Closing Date;
    (e) In order to ensure that the characteristics of the receivables 
actually acquired during the Pre-Funding Period are substantially 
similar to those which were acquired as of the Closing Date, the 
characteristics of the additional obligations will either be monitored 
by a credit support provider or other insurance provider which is 
independent of the Sponsor or an independent accountant retained by the 
Sponsor will provide the Sponsor with a letter (with copies provided to 
the Rating Agency, the Underwriter and the Trustee) stating whether or 
not the characteristics of the additional obligations conform to the 
characteristics of such obligations described in the prospectus, 
private placement memorandum and/or Pooling and Servicing Agreement. In 
preparing such letter, the independent accountant will use the same 
type of procedures as were applicable to the obligations which were 
transferred as of the Closing Date;
    (f) The Pre-Funding Period shall be described in the prospectus or 
private placement memorandum provided to investing plans; and
    (g) The Trustee of the Trust (or any agent with which the Trustee 
contracts to provide Trust services) will be a substantial financial 
institution or trust company experienced in trust activities and 
familiar with its duties, responsibilities and liabilities as a 
fiduciary under the Act. The Trustee, as the legal owner of the 
obligations in the Trust or the holder of a security interest in the 
obligations held by the Issuer, will enforce all the rights created in 
favor of securityholders of the Issuer, including employee benefit 
plans subject to the Act;
    (8) In order to insure that the assets of the Issuer may not be 
reached by creditors of the Sponsor in the event of bankruptcy or other 
insolvency of the Sponsor:
    (a) The legal documents establishing the Issuer will contain:
    (i) Restrictions on the Issuer's ability to borrow money or issue 
debt other than in connection with the securitization;
    (ii) Restrictions on the Issuer merging with another entity, 
reorganizing, liquidating or selling assets (other than in connection 
with the securitization);
    (iii) Restrictions limiting the authorized activities of the Issuer 
to activities relating to the securitization;
    (iv) If the Issuer is not a Trust, provisions for the election of 
at least one independent director/partner/member whose affirmative 
consent is required before a voluntary bankruptcy petition can be filed 
by the Issuer; and
    (v) If the Issuer is not a Trust, requirements that each 
independent director/partner/member must be an individual that does not 
have a significant interest in, or other relationships with, the 
Sponsor or any of its Affiliates; and
    (b) The Pooling and Servicing Agreement and/or other agreements 
establishing the contractual relationships between the parties to the 
securitization transaction will contain covenants prohibiting all 
parties thereto from filing an involuntary bankruptcy petition against 
the Issuer or initiating any other form of insolvency proceeding until 
after the Securities have been paid; and
    (c) Prior to the issuance by the Issuer of any Securities, a legal 
opinion is received which states that either:
    (i) A ``true sale'' of the assets being transferred to the Issuer 
by the Sponsor has occurred and that such transfer is not being made 
pursuant to a financing of the assets by the Sponsor; or
    (ii) In the event of insolvency or receivership of the Sponsor, the 
assets transferred to the Issuer will not be part of the estate of the 
Sponsor;
    (9) If a particular class of Securities held by any plan involves a 
Ratings Dependent or Non-Ratings Dependent Swap entered into by the 
Issuer, then each particular swap transaction relating to such 
Securities:
    (a) Shall be an Eligible Swap;
    (b) Shall be with an Eligible Swap Counterparty;
    (c) In the case of a Ratings Dependent Swap, shall provide that if 
the credit rating of the counterparty is withdrawn or reduced by any 
Rating Agency below a level specified by the Rating Agency, the 
Servicer (as agent for the Trustee) shall, within the period specified 
under the Pooling and Servicing Agreement:
    (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 
Securities will not be withdrawn or reduced.
    In the event that the Servicer fails to meet its obligations under 
this subsection II.A.(9)(c), plan securityholders will be notified in 
the immediately following Trustee's periodic report which is provided 
to securityholders, and sixty days after the receipt of such report, 
the exemptive relief provided under section I.C. will prospectively 
cease to be applicable to any class of Securities held by a plan which 
involves such Ratings Dependent

[[Page 41094]]

Swap; provided that in no event will such plan securityholders be 
notified any later than the end of the second month that begins after 
the date on which such failure occurs.
    (d) In the case of a Non-Ratings Dependent Swap, shall provide 
that, if the credit rating of the counterparty is withdrawn or reduced 
below the lowest level specified in section III.GG., 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 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 Issuer to make any termination payments 
to the counterparty (other than a currently scheduled payment under the 
swap agreement) except from Excess Spread or other amounts that would 
otherwise be payable to the Servicer or the Sponsor;
    (10) Any class of Securities, to which one or more swap agreements 
entered into by the Issuer applies, may be acquired or held in reliance 
upon this Underwriter Exemption only by Qualified Plan Investors; and
    (11) Prior to the issuance of any debt securities, a legal opinion 
is received which states that the debt holders have a perfected 
security interest in the Issuer's assets.
    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 Securities, shall be denied the relief 
provided under section I., if the provision of subsection II.A.(6) is 
not satisfied with respect to acquisition or holding by a plan of such 
Securities, provided that (1) such condition is disclosed in the 
prospectus or private placement memorandum; and (2) in the case of a 
private placement of Securities, 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 Securities) is required to 
obtain from its transferee a representation regarding compliance with 
the Securities Act of 1933, any such transferees will be required to 
make a written representation regarding compliance with the condition 
set forth in subsection II.A.(6).

III. Definitions

    For purposes of this exemption:
    A. ``Security'' means:
    (1) A pass-through certificate or trust certificate that represents 
a beneficial ownership interest in the assets of an Issuer which is a 
Trust and which entitles the holder to payments of principal, interest 
and/or other payments made with respect to the assets of such Trust; or
    (2) A security which is denominated as a debt instrument that is 
issued by, and is an obligation of, an Issuer; with respect to which 
the Underwriter is either (i) the sole underwriter or the manager or 
co-manager of the underwriting syndicate, or (ii) a selling or 
placement agent.
    B. ``Issuer'' means an investment pool, the corpus or assets of 
which are held in trust (including a grantor or owner Trust) or whose 
assets are held by a partnership, special purpose corporation or 
limited liability company (which Issuer may be a Real Estate Mortgage 
Investment Conduit (REMIC) or a Financial Asset Securitization 
Investment Trust (FASIT) within the meaning of section 860D(a) or 
section 860L, respectively, of the Code); and the corpus or assets of 
which consist solely of:
    (1)(a) Secured consumer receivables that bear interest or are 
purchased at a discount (including, but not limited to, home equity 
loans and obligations secured by shares issued by a cooperative housing 
association); and/or
    (b) Secured credit instruments that bear interest or are purchased 
at a discount in transactions by or between business entities 
(including, but not limited to, Qualified Equipment Notes Secured by 
Leases); and/or
    (c) Obligations that bear interest or are purchased at a discount 
and which are secured by single-family residential, multi-family 
residential and/or commercial real property (including obligations 
secured by leasehold interests on residential or commercial real 
property); and/or
    (d) Obligations that bear interest or are purchased at a discount 
and which are secured by motor vehicles or equipment, or Qualified 
Motor Vehicle Leases; and/or
    (e) Guaranteed governmental mortgage pool certificates, as defined 
in 29 CFR 2510.3-101(i)(2); and/or
    (f) Fractional undivided interests in any of the obligations 
described in clauses (a)-(e) of this subsection B.(1).
    (1) Notwithstanding the foregoing, residential and home equity loan 
receivables issued in Designated Transactions may be less than fully 
secured, provided that: (i) The rights and interests evidenced by the 
Securities issued in such Designated Transactions (as defined in 
section III.DD.) are not subordinated to the rights and interests 
evidenced by Securities of the same Issuer; (ii) such Securities 
acquired by the plan have received a rating from a Rating Agency at the 
time of such acquisition that is in one of the two highest generic 
rating categories; and (iii) any obligation included in the corpus or 
assets of the Issuer must be secured by collateral whose fair market 
value on the Closing Date of the Designated Transaction is at least 
equal to 80% of the sum of: (I) The outstanding principal balance due 
under the obligation which is held by the Issuer and (II) the 
outstanding principal balance(s) of any other obligation(s) of higher 
priority (whether or not held by the Issuer) which are secured by the 
same collateral.
    (2) Property which had secured any of the obligations described in 
subsection III.B.(1);
    (3)(a) Undistributed cash or temporary investments made therewith 
maturing no later than the next date on which distributions are made to 
securityholders; and/or
    (b) Cash or investments made therewith which are credited to an 
account to provide payments to securityholders pursuant to any Eligible 
Swap Agreement meeting the conditions of subsection II.A.(9) or 
pursuant to any Eligible Yield Supplement Agreement; and/or
    (c) Cash transferred to the Issuer on the Closing Date and 
permitted investments made therewith which:
    (i) Are credited to a Pre-Funding Account established to purchase 
additional obligations with respect to which the conditions set forth 
in paragraphs (a)-(g) of subsection II.A.(7) are met; and/or
    (ii) Are credited to a Capitalized Interest Account; and
    (iii) Are held by the Issuer for a period ending no later than the 
first distribution date to securityholders occurring after the end of 
the Pre-Funding Period.
    For purposes of this paragraph (c) of subsection III.B.(3), the 
term ``permitted investments'' means investments which: (i) are either: 
(x) direct obligations of, or obligations fully guaranteed as to timely 
payment of principal and interest by,

[[Page 41095]]

the United States or any agency or instrumentality thereof, provided 
that such obligations are backed by the full faith and credit of the 
United States or (y) have been rated (or the Obligor has been rated) in 
one of the three highest generic rating categories by a Rating Agency; 
(ii) are described in the Pooling and Servicing Agreement; and (iii) 
are permitted by the Rating Agency.
    (4) Rights of the Trustee under the Pooling and Servicing 
Agreement, and rights under any insurance policies, third-party 
guarantees, contracts of suretyship, Eligible Yield Supplement 
Agreements, Eligible Swap Agreements meeting the conditions of 
subsection II.A.(9) or other credit support arrangements with respect 
to any obligations described in subsection III.B.(1).
    Notwithstanding the foregoing, the term ``Issuer'' does not include 
any investment pool unless: (i) The assets of the type described in 
paragraphs (a)-(f) of subsection III.B.(1) which are contained in the 
investment pool have been included in other investment pools, (ii) 
Securities evidencing interests in such other investment pools have 
been rated in one of the three (or in the case of Designated 
Transactions, four) highest generic rating categories by a Rating 
Agency for at least one year prior to the plan's acquisition of 
Securities pursuant to this Underwriter Exemption, and (iii) Securities 
evidencing interests 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 Securities pursuant to this Underwriter Exemption.
    C. ``Underwriter'' means:
    (1) An entity defined as an Underwriter in subsection III.C.(1) of 
each of the Underwriter Exemptions that are being amended by this 
exemption. In addition, the term Underwriter includes Deutsche Bank AG, 
New York Branch and Deutsche Morgan Grenfell/C.J. Lawrence Inc, Credit 
Lyonnais Securities (USA) Inc., ABN AMRO Inc., Ironwood Capital 
Partners Ltd., William J. Mayer Securities LLC, Raymond James & 
Associates Inc. & Raymond James Financial Inc., WAMU Capital 
Corporation, and Terwin Capital LLC (which received the approval of the 
Department to engage in transactions substantially similar to the 
transactions described in the Underwriter Exemptions pursuant to PTE 
96-62); (2) Any person directly or indirectly, through one or more 
intermediaries, controlling, controlled by or under common control with 
such entity; or (3) Any member of an underwriting syndicate or selling 
group of which a person described in subsections III.C.(1) or (2) is a 
manager or co-manager with respect to the Securities.
    D. ``Sponsor'' means the entity that organizes an Issuer by 
depositing obligations therein in exchange for Securities.
    E. ``Master Servicer'' means the entity that is a party to the 
Pooling and Servicing Agreement relating to assets of the Issuer and is 
fully responsible for servicing, directly or through Subservicers, the 
assets of the Issuer.
    F. ``Subservicer'' means an entity which, under the supervision of 
and on behalf of the Master Servicer, services loans contained in the 
Issuer, but is not a party to the Pooling and Servicing Agreement.
    G. ``Servicer'' means any entity which services loans contained in 
the Issuer, including the Master Servicer and any Subservicer.
    H. ``Trust'' means an Issuer which is a trust (including an owner 
trust, grantor trust or a REMIC or FASIT which is organized as a 
Trust).
    I. ``Trustee'' means the Trustee of any Trust which issues 
Securities and also includes an Indenture Trustee. ``Indenture 
Trustee'' means the Trustee appointed under the indenture pursuant to 
which the subject Securities are issued, the rights of holders of the 
Securities are set forth and a security interest in the Trust assets in 
favor of the holders of the Securities is created. The Trustee or the 
Indenture Trustee is also a party to or beneficiary of all the 
documents and instruments transferred to the Issuer, and as such, has 
both the authority to, and the responsibility for, enforcing all the 
rights created thereby in favor of holders of the Securities, including 
those rights arising in the event of default by the Servicer.
    J. ``Insurer'' means the insurer or guarantor of, or provider of 
other credit support for, an Issuer. Notwithstanding the foregoing, a 
person is not an insurer solely because it holds Securities 
representing an interest in an Issuer which are of a class subordinated 
to Securities representing an interest in the same Issuer.
    K. ``Obligor'' means any person, other than the Insurer, that is 
obligated to make payments with respect to any obligation or receivable 
included in the Issuer. Where an Issuer contains Qualified Motor 
Vehicle Leases or Qualified Equipment Notes Secured by Leases, 
``Obligor'' shall also include any owner of property subject to any 
lease included in the Issuer, or subject to any lease securing an 
obligation included in the Issuer.
    L. ``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.
    M. ``Restricted Group'' with respect to a class of Securities 
means:
    (1) Each Underwriter;
    (2) Each Insurer;
    (3) The Sponsor;
    (4) The Trustee;
    (5) Each Servicer;
    (6) Any Obligor with respect to obligations or receivables included 
in the Issuer constituting more than 5 percent of the aggregate 
unamortized principal balance of the assets in the Issuer, determined 
on the date of the initial issuance of Securities by the Issuer;
    (7) Each counterparty in an Eligible Swap Agreement; or
    (8) Any Affiliate of a person described in subsections III.M.(1)-
(7).
    N. ``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.
    O. ``Control'' means the power to exercise a controlling influence 
over the management or policies of a person other than an individual.
    P. 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.
    Q. ``Sale'' includes the entrance into a Forward Delivery 
Commitment, 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 Underwriter 
Exemption applicable to sales are met.

[[Page 41096]]

    R. ``Forward Delivery Commitment'' means a contract for the 
purchase or sale of one or more Securities to be delivered at an agreed 
future settlement date. The term includes both mandatory contracts 
(which contemplate obligatory delivery and acceptance of the 
Securities) and optional contracts (which give one party the right but 
not the obligation to deliver Securities to, or demand delivery of 
Securities from, the other party).
    S. ``Reasonable Compensation'' has the same meaning as that term is 
defined in 29 CFR 2550.408c-2.
    T. ``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 in respect of the 
obligations;
    (2) The Servicer may not charge the fee absent the act or failure 
to act referred to in subsection III.T.(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; and
    (4) The amount paid to investors in the Issuer will not be reduced 
by the amount of any such fee waived by the Servicer.
    U. ``Qualified Equipment Note Secured By A Lease'' means an 
equipment note:
    (1) Which is secured by equipment which is leased;
    (2) Which is secured by the obligation of the lessee to pay rent 
under the equipment lease; and
    (3) With respect to which the Issuer's security interest in the 
equipment is at least as protective of the rights of the Issuer as the 
Issuer would have if the equipment note were secured only by the 
equipment and not the lease.
    V. ``Qualified Motor Vehicle Lease'' means a lease of a motor 
vehicle where:
    (1) The Issuer owns or holds a security interest in the lease;
    (2) The Issuer owns or holds a security interest in the leased 
motor vehicle; and
    (3) The Issuer's security interest in the leased motor vehicle is 
at least as protective of the Issuer's rights as the Issuer would 
receive under a motor vehicle installment loan contract.
    W. ``Pooling and Servicing Agreement'' means the agreement or 
agreements among a Sponsor, a Servicer and the Trustee establishing a 
Trust. ``Pooling and Servicing Agreement'' also includes the indenture 
entered into by the Issuer and the Indenture Trustee.
    X. ``Rating Agency'' means a credit rating agency that:
    (i) Is currently recognized by the U.S. Securities and Exchange 
Commission (SEC) as a nationally recognized statistical ratings 
organization (NRSRO);
    (ii) Has indicated on its most recently filed SEC Form NRSRO that 
it rates ``issuers of asset-backed securities''; and
    (iii) Has had, within a period not exceeding 12 months prior to the 
initial issuance of the securities, at least three (3) ``qualified 
ratings engagements. A ``qualified ratings engagement'' is one (i) 
requested by an issuer or underwriter of securities in connection with 
the initial offering of the securities; (ii) for which the credit 
rating agency is compensated for providing ratings; (iii) which is made 
public to investors generally; and (iv) which involves the offering of 
securities of the type that would be granted relief by the Underwriter 
Exemptions.
    Y. ``Capitalized Interest Account'' means an Issuer account: (i) 
Which is established to compensate securityholders for shortfalls, if 
any, between investment earnings on the Pre-Funding Account and the 
interest rate payable under the Securities; and (ii) which meets the 
requirements of paragraph (c) of subsection III.B.(3).
    Z. ``Closing Date'' means the date the Issuer is formed, the 
Securities are first issued and the Issuer's assets (other than those 
additional obligations which are to be funded from the Pre-Funding 
Account pursuant to subsection II.A.(7)) are transferred to the Issuer.
    AA. ``Pre-Funding Account'' means an Issuer account: (i) Which is 
established to purchase additional obligations, which obligations meet 
the conditions set forth in paragraph (a)-(g) of subsection II.A.(7); 
and (ii) which meets the requirements of paragraph (c) of subsection 
III.B.(3).
    BB. ``Pre-Funding Limit'' means a percentage or ratio of the amount 
allocated to the Pre-Funding Account, as compared to the total 
principal amount of the Securities being offered, which is less than or 
equal to 25 percent.
    CC. ``Pre-Funding Period'' means the period commencing on the 
Closing Date and ending no later than the earliest to occur of: (i) The 
date the amount on deposit in the Pre-Funding Account is less than the 
minimum dollar amount specified in the Pooling and Servicing Agreement; 
(ii) the date on which an event of default occurs under the Pooling and 
Servicing Agreement; or (iii) the date which is the later of three 
months or ninety days after the Closing Date.
    DD. ``Designated Transaction'' means a securitization transaction 
in which the assets of the Issuer consist of secured consumer 
receivables, secured credit instruments or secured obligations that 
bear interest or are purchased at a discount and are: (i) Motor 
vehicle, home equity and/or manufactured housing consumer receivables; 
and/or (ii) motor vehicle credit instruments in transactions by or 
between business entities; and/or (iii) single-family residential, 
multi-family residential, home equity, manufactured housing and/or 
commercial mortgage obligations that are secured by single-family 
residential, multi-family residential, commercial real property or 
leasehold interests therein. For purposes of this section III.DD., the 
collateral securing motor vehicle consumer receivables or motor vehicle 
credit instruments may include motor vehicles and/or Qualified Motor 
Vehicle Leases.
    EE. ``Ratings Dependent Swap'' means an interest rate swap, or (if 
purchased by or on behalf of the Issuer) an interest rate cap contract, 
that is part of the structure of a class of Securities where the rating 
assigned by the Rating Agency to any class of Securities held by any 
plan is dependent on the terms and conditions of the swap and the 
rating of the counterparty, and if such Security rating is not 
dependent on the existence of the swap and rating of the 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 Securities must confirm, as of the date of issuance 
of the Securities by the Issuer, that entering into an Eligible Swap 
with such counterparty will not affect the rating of the Securities.
    FF. ``Eligible Swap'' means a Ratings Dependent or Non-Ratings 
Dependent Swap:
    (1) Which is denominated in U.S. dollars;
    (2) Pursuant to which the Issuer pays or receives, on or 
immediately prior to the respective payment or distribution date for 
the class of Securities to which the swap relates, 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 Issuer receiving such payments on at least a 
quarterly basis and obligated to make separate payments no more 
frequently than the counterparty, with all simultaneous payments being 
netted;
    (3) Which has a notional amount that does not exceed either: (i) 
The principal balance of the class of Securities to which the swap 
relates, or (ii) the portion of the principal balance of such class 
represented solely by those types of corpus or assets of the Issuer 
referred to in subsections III.B.(1), (2) and (3);

[[Page 41097]]

    (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 subsection III.FF.(2), 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 either the earlier 
of the date on which the Issuer terminates or the related class of 
securities is fully repaid; and
    (6) Which does not incorporate any provision which could cause a 
unilateral alteration in any provision described in subsections 
III.FF.(1) through (4) without the consent of the Trustee.
    GG. ``Eligible Swap Counterparty'' means a bank or other financial 
institution which has a rating, at the date of issuance of the 
Securities by the Issuer, 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 Securities; provided that, if a swap counterparty 
is relying on its short-term rating to establish eligibility under the 
Underwriter Exemption, such swap 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 Securities with which the swap is 
associated has a final maturity date of more than one year from the 
date of issuance of the Securities, 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.
    HH. ``Qualified Plan Investor'' means a plan investor or group of 
plan investors on whose behalf the decision to purchase Securities 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 Issuer and the effect such swap would have upon the credit 
ratings of the Securities. For purposes of the Underwriter Exemption, 
such a fiduciary is either:
    (1) A ``qualified professional asset manager'' (QPAM),\6\ as 
defined under Part V(a) of PTE 84-14, 49 FR 9494, 9506 (March 13, 
1984), as amended by 70 FR 49305 (August 23, 2005);
    (2) An ``in-house asset manager'' (INHAM),\7\ as defined under Part 
IV(a) of PTE 96-23, 61 FR 15975, 15982 (April 10, 1996); or
    (3) A plan fiduciary with total assets under management of at least 
$100 million at the time of the acquisition of such Securities.
    II. ``Excess Spread'' means, as of any day funds are distributed 
from the Issuer, the amount by which the interest allocated to 
Securities exceeds the amount necessary to pay interest to 
securityholders, servicing fees and expenses.
    JJ. ``Eligible Yield Supplement Agreement'' means any yield 
supplement agreement, similar yield maintenance arrangement or, if 
purchased by or on behalf of the Issuer, an interest rate cap contract 
to supplement the interest rates otherwise payable on obligations 
described in subsection III.B.(1). Such an agreement or arrangement may 
involve a notional principal contract provided that:
    (1) It is denominated in U.S. dollars;
    (2) The Issuer receives on, or immediately prior to the respective 
payment date for the Securities covered by such agreement or 
arrangement, a fixed rate of interest or a floating rate of interest 
based on a publicly available index (e.g., LIBOR or COFI), with the 
Issuer receiving such payments on at least a quarterly basis;
    (3) It is not ``leveraged'' as described in subsection III.FF.(4);
    (4) It does not incorporate any provision which would cause a 
unilateral alteration in any provision described in subsections 
III.JJ.(1)-(3) without the consent of the Trustee;
    (5) It is entered into by the Issuer with an Eligible Swap 
Counterparty; and
    (6) It has a notional amount that does not exceed either: (i) the 
principal balance of the class of Securities to which such agreement or 
arrangement relates, or (ii) the portion of the principal balance of 
such class represented solely by those types of corpus or assets of the 
Issuer referred to in subsections III.B.(1), (2) and (3).

IV. Modifications

    For the Underwriter Exemptions provided to Residential Funding 
Corporation, Residential Funding Mortgage Securities, Inc., et al. and 
GE Capital Mortgage Services, Inc. and GECC Capital Markets (the 
Applicants) (PTEs 94-29 and 94-73, respectively);
    A. Section III.A. of this exemption is modified to read as follows:
    A. ``Security'' means:
    (1) A pass-through certificate or trust certificate that represents 
a beneficial ownership interest in the assets of an Issuer which is a 
Trust and which entitles the holder to payments of principal, interest 
and/or other payments made with respect to the assets of such Trust; or
    (2) A security which is denominated as a debt instrument that is 
issued by, and is an obligation of, an Issuer; with respect to which 
(i) one of the Applicants or any of its Affiliates is the Sponsor, 
[and] an entity which has received from the Department an individual 
prohibited transaction exemption relating to Securities which is 
similar to this exemption, is the sole underwriter or the manager or 
co-manager of the underwriting syndicate or a selling or placement 
agent or (ii) one of the Applicants or any of its Affiliates is the 
sole underwriter or the manager or co-manager of the underwriting 
syndicate, or a selling or placement agent.
    B. Section III.C. of this exemption is modified to read as follows:
    C. Underwriter means:
    (1) An entity defined as an Underwriter in subsection III.C.(1) of 
each of the Underwriter Exemptions that are being amended by this 
exemption. In addition, the term Underwriter includes Deutsche Bank AG, 
New York Branch and Deutsche Morgan Grenfell/C.J. Lawrence Inc., Credit 
Lyonnais Securities (USA) Inc., ABN AMRO Inc., Ironwood Capital 
Partners Ltd., William J. Mayer Securities LLC, Raymond James & 
Associates Inc. & Raymond James Financial Inc., WAMU Capital 
Corporation, and Terwin Capital LLC (which received the approval of the 
Department to engage in transactions substantially similar to the 
transactions described in the Underwriter Exemptions pursuant to PTE 
96-62);
    (2) Any person directly or indirectly, through one or more 
intermediaries, controlling, controlled by or under common control with 
such entity;
    (3) Any member of an underwriting syndicate or selling group of 
which a person described in subsections III.C.(1) or (2) above is a 
manager or co-manager with respect to the Securities; or
    (4) Any entity which has received from the Department an individual 
prohibited transaction exemption relating to Securities which is 
similar to this exemption.

Technical Correction to the Notice

    In order to correct an inadvertent omission, the Department is 
adopting a correction to the Notice on its own motion. At footnote 13 
on page 76773 of the Notice, the following organization and Final 
Authorization Number (FAN) is included in the list of organizations 
that the Department is granting individual relief for, after the phrase

[[Page 41098]]

``(August 24, 2003);'' ``Barclays Bank PLC & Barclays Capital Inc., FAN 
04-03E (February 4, 2004)''.

Description of Proposed Amendment

    On December 28, 2012, the Department published the Notice at 77 FR 
76773. As set forth in the Notice, the Department proposed to revise 
the definition of ``Rating Agency,'' as set forth in section III.X of 
the Underwriter Exemptions, by eliminating any specific reference to a 
particular credit rating agency, and substituting instead the 
following:
    Section III.X:
    Effective as of the date of publication of a final amendment to the 
Underwriter Exemptions in the Federal Register, the term ``Rating 
Agency'' means a credit rating agency that: (i) Is currently recognized 
by the U.S. Securities and Exchange Commission (SEC) as a nationally 
recognized statistical ratings organization (NRSRO); (ii) has indicated 
on its most recently filed SEC Form NRSRO that it rates ``issuers of 
asset-backed securities''; and (iii) has had, within a period not 
exceeding 12 months prior to the closing of the current transaction, at 
least three (3) ``qualified ratings engagements.'' A ``qualified 
ratings engagement'' is one (i) requested by an issuer or underwriter 
of securities in connection with the initial offering of the 
securities; (ii) for which the credit rating agency is compensated for 
providing ratings; (iii) which is a public rating; and (iv) which 
involves the offering of securities of the type that would be granted 
relief by the Underwriter Exemptions.

Written Comment

    The Department invited all interested persons to submit written 
comments and requests for a hearing with respect to the Notice by 
February 11, 2013. Prior to the deadline, Barbara Klippert of Bingham 
McCutchen LLP made a request for an extension of the comment period on 
behalf of herself and a group of 11 other attorneys from various law 
firms (together with Ms. Klippert, the Commenters) collaboratively 
working on a comment letter (the Comment) because additional time was 
needed to coordinate all of the attorney comments.\5\ Accordingly, the 
Department granted the Commenters a three-day extension of the comment 
period, and the Comment was received via email on February 14, 2013. No 
other comments were received during the comment period, and there were 
no requests for a public hearing.
---------------------------------------------------------------------------

    \5\ The attorneys that signed the Comment are: Micah Bloomfield 
of Stroock & Stroock & Lavan LLP; Susan M. Camillo of Dechert LLP; 
Sarah Downie of Orrick, Herrington & Sutcliffe LLP; Richard Gilbert 
of Trucker Huss, APC; Tae Jeon of Ashurst, LLP; Barbara D. Klippert 
of Bingham McCutchen LLP; Lennine Occhino of Mayer Brown LLP; Leslie 
Okinaka of Hunton & Williams LLC; David C. Olstein of Skadden, Arps, 
Slate, Meagher & Flom LLP; Andrew L. Oringer of Dechert LLP; Steven 
W. Rabits of Stroock & Stroock & Lavan LLP; and Kathleen Wechter of 
Kaye Scholer LLP.
    The Commenters explained that they submitted the Comment in the 
hope that their experience in working with the Underwriter 
Exemptions would be of assistance to the Department in finalizing 
the Notice. Specifically, the Commenters stated that in the course 
of their practices, they (i) may represent various Sponsors, 
Underwriters or plans regarding whether securitization transactions 
and the securities issued in such transactions meet the conditions 
of the Underwriter Exemptions and are thus eligible to be purchased 
or sold by the plans and; (ii) may also be called upon to render 
legal opinions as to whether the offering documents relating to the 
securities accurately describe matters of law relating to the Act, 
which by definition include their conclusions as to whether 
securities intended to be eligible to be purchased by plans pursuant 
to the Underwriter Exemptions are so eligible. In addition, the 
Commenters stated that a number of the attorneys listed as 
signatories of the Comment have represented Underwriters in their 
application and receipt of Underwriter Exemptions and amendments 
thereto from the Department, which Underwriter Exemptions would be 
amended by the Notice.
---------------------------------------------------------------------------

    The Commenters expressed general support for the modifications 
described in the Notice and requested certain clarifications and/or 
changes regarding: (1) Footnote 23 of the Notice; (2) the 12-month 
period described in clause (iii) of the definition of ``Rating 
Agency;'' (3) the term ``public rating,'' as set forth in sub-clause 
(iii) of the definition of a ``qualified ratings engagement;'' and (4) 
sub-clause (iv) of the definition of a ``qualified ratings engagement'' 
and certain preamble language relating thereto. The Comment and the 
Department's responses thereto are described in further detail below.
    1. Requested Clarification of Footnote 23. Footnote 23 of the 
Notice states that ``[p]lan fiduciaries are responsible for confirming 
that any rating given for a certificate acquired pursuant to an 
Underwriter Exemption was issued by a credit rating agency that has met 
the Rating Agency criteria set forth herein. In that regard, plan 
fiduciaries may demonstrate that they have fulfilled their fiduciary 
responsibilities to the plan by accepting representations from credit 
rating agencies that the foregoing criteria have been met.'' The 
Commenters indicate that footnote 23 can have the unintended 
consequence of requiring a plan fiduciary to obtain representations 
directly from a rating agency in order to rely upon a rating agency's 
representation that it has met the Rating Agency criteria set forth in 
the Notice. The Commenters explain that the offering documents pursuant 
to which Securities \6\ that are intended to qualify under the 
Underwriter Exemption are issued take a position as to whether the 
conditions of the applicable Underwriter Exemption are met or may be 
met, which involves a determination by legal counsel as to whether a 
credit rating agency satisfies the definition of Rating Agency. The 
Commenters further explain that plan fiduciaries would in the normal 
course review such disclosures in the offering documents in making a 
decision, consistent with their fiduciary responsibilities, to invest 
in securities. The Commenters propose that the representation to the 
plan fiduciaries referred to in footnote 23 could, for example, be 
accomplished indirectly by means of a representation by the rating 
agency made to the Sponsor,\7\ depositor, Issuer,\8\ Underwriter \9\ or 
other appropriate party to the securitization transaction (for example 
in the engagement letter retaining the rating agency to rate the 
securities). The Commenters state that counsel to the Issuer, counsel 
to the Underwriter, and plan fiduciaries, in making their respective 
determinations as to the applicability of an Underwriter Exemption 
would be able to take into account any relevant representations 
provided by the rating agencies in the engagement letters discussed 
above.
---------------------------------------------------------------------------

    \6\ The term ``Security'' is defined in section III.A of the 
Underwriter Exemptions.
    \7\ The term ``Sponsor'' is defined in section III.D of the 
Underwriter Exemptions.
    \8\ The term ``Issuer'' is defined in section III.B of the 
Underwriter Exemptions.
    \9\ The term ``Underwriter'' is defined in section III.C of the 
Underwriter Exemptions.
---------------------------------------------------------------------------

    The Commenters also state that they did not read footnote 23 and 
the accompanying text as intending to limit the alternatives that are 
available for determining that a rating agency has met the Rating 
Agency criteria under the Notice or that a representation to plans by a 
rating agency is the sole means by which a rating agency could 
demonstrate that it has met the Rating Agency criteria set forth in the 
Notice. The Commenters, however, express their belief that if the 
Department were to confirm that additional alternative methods could be 
used to ascertain whether a rating agency has, in fact, met the Rating 
Agency criteria, this would greatly facilitate transactions being able 
to proceed under the Notice when finalized.
    The Department, in stating that plan fiduciaries ``may accept 
representations from credit rating agencies to confirm that the Rating 
Agency criteria have been met,'' sought to identify direct 
representations by credit rating agencies

[[Page 41099]]

to plans as one of the possible means by which plan fiduciaries may 
confirm that the Rating Agency criteria have been met. In this regard, 
the Department acknowledges that it is possible for plan fiduciaries, 
consistent with their duties under section 404 of ERISA, to 
alternatively rely on material, indirect representations in making such 
confirmations. Accordingly, the Department agrees with the Commenters 
that the reference in footnote 23 that plan fiduciaries ``may accept 
representations from credit rating agencies to confirm that the Rating 
Agency criteria have been met'' should not be viewed as precluding plan 
fiduciaries from relying on material, indirect representations by 
rating agencies when confirming whether such agencies have met the 
Rating Agency criteria set forth in the Underwriter Exemptions.
    2. Requested Modification of Clause (3) of the Definition of Rating 
Agency. The Commenters note that clause (iii) of the definition of 
``Rating Agency'' refers to the rating agency having had ``within a 
period not exceeding 12 months prior to the closing of the current 
transaction, at least three (3) ``qualified ratings engagements.'' The 
definition of ``qualified ratings engagement,'' meanwhile, refers to 
one ``requested by an issuer or underwriter of securities in connection 
with the initial offering of the securities.'' The Commenters believe 
that confusion may be created because the reference to 12 months prior 
to the ``closing of the current transaction'' could be taken to include 
a secondary market transaction. The Commenters state that such a 
requirement would be extremely difficult for investors in the secondary 
market to confirm. Therefore, the Commenters suggest that once a rating 
agency qualifies as a Rating Agency as of the initial offering of a 
securitization transaction, it should remain qualified as a Rating 
Agency for purposes of the particular securities issued in that 
transaction when such securities are purchased in the secondary market. 
The Commenters state that security ratings are requested by an Issuer 
or an Underwriter of securities with respect to a structured finance 
transaction in the following circumstances: A rating agency may be 
asked to rate securities issued on the Closing Date; \10\ or if the 
securities are not rated or the Issuer or Underwriter is not able to 
sell the securities, a new rating agency may be asked to rate the 
securities at a later date. Such securities rated at a later date are 
considered to be sold as part of the initial offering as they have not 
yet been sold to any party other than the Underwriter. As part of a 
rating agency's engagement, it agrees to update its rating periodically 
over the life of the security. The Issuer or Underwriter would not 
retain another rating agency to rate the securities upon a secondary 
market transfer. Accordingly, the Commenters suggest that the reference 
in clause (iii) of the definition of ``Rating Agency'' to the rating 
agency having had ``within a period not exceeding 12 months prior to 
the closing of the current transaction, at least three (3) `qualified 
ratings engagements' '' could be changed to avoid confusion to read 
that the rating agency has had ``within a period not exceeding 12 
months prior to either, the Closing Date or the initial issuance of the 
securities, at least three (3) `qualified ratings engagements.' ''
---------------------------------------------------------------------------

    \10\ The term ``Closing Date'' is defined in section III.Z of 
the Underwriter Exemptions.
---------------------------------------------------------------------------

    Upon consideration of the comment above, the Department agrees that 
clause (iii) of the definition of Rating Agency should be modified. The 
Department has modified the relevant portion of clause (iii) of the 
Rating Agency definition to require that a Rating Agency, ``has had, 
within a period not exceeding 12 months prior to the initial issuance 
of the securities, at least three (3) `qualified ratings engagements.' 
'' Given the Commenters' representation that an Issuer or Underwriter 
would not retain another rating agency to rate the securities upon a 
secondary market transfer, the Department believes that once a rating 
agency qualifies as a Rating Agency as of the initial offering of a 
securitization transaction, it should remain qualified as a Rating 
Agency for purposes of the particular securities issued in that 
transaction to the extent that the rating agency is still updating its 
rating of the security. However, while a Rating Agency's rating of 
securities sold as part of an initial offering of securities may be 
counted as a ``qualified ratings engagement,'' subsequent updates of 
the same security by such Rating Agency may not be counted as a 
``qualified ratings engagement'' for purposes of determining whether 
the Rating Agency has had ``within a period not exceeding 12 months 
prior to the closing of the current transaction, at least three (3) 
`qualified ratings engagements,' '' as described in clause (iii) of the 
definition of ``Rating Agency.''
    3. Requested Clarification of Sub-Clause (iii) of the Definition of 
a ``qualified ratings engagement.'' The Commenters note that sub-clause 
(iii) of the definition of ``qualified ratings engagement'' set forth 
in the Notice refers to the term ``public rating.'' The Commenters 
believe that it would be helpful to clarify that this term refers to a 
rating which is made public to investors generally, as opposed to one 
that is made available only to certain investors. The Commenters 
suggest that the Department clarify that the nature of the type of a 
securities offering should not be determinative of whether a rating was 
``public.'' The Commenters believe, for example, that securities issued 
pursuant to a private placement using a private placement memorandum as 
the offering document should be covered, provided the rating is 
available to the public. The Commenters also note that, at this time, 
many more securities of the type that would be granted relief under the 
Underwriter Exemptions are sold in private placements than are sold in 
public offerings.
    The Department, in proposing to describe a ``qualified ratings 
engagement'' as, among other things, a ``public rating,'' intended that 
such rating be a rating that is made public to investors. Accordingly, 
the Department did not intend that such term refers to a rating that is 
available only to a controlled number of investors. The Department 
notes that a rating may be made public to investors generally in 
addition to being set forth in an offering document, such as a private 
placement memorandum, that is received by a controlled number of 
recipients. To clarify the views above, the Department is changing the 
term ``public rating'' as it appears in sub-clause (iii) of the 
definition of ``qualified ratings engagement,'' to read ``rating that 
is made public to investors generally.''
    4. Requested Clarification of Sub-Clause (iv) of the Definition of 
a ``qualified ratings engagement.'' The Commenters seek two 
clarifications relating to sub-clause (iv) of the definition of a 
``qualified ratings engagement.'' First, the Commenters note that sub-
clause (iv) of the definition of a ``qualified ratings engagement'' 
provides that during the applicable 12-month period such engagement 
``involves the offering of securities of the type that would be granted 
relief by the Underwriter Exemptions.'' The Commenters further note 
that, in contrast, the Department's reference to this requirement in 
the preamble to the Notice reads: ``. . . the NRSRO must demonstrate 
that it has been selected to rate at least three similar transactions 
during the preceding 12 months.'' \11\ The Commenters state that the 
term ``similar transactions,'' as set forth in the

[[Page 41100]]

preamble, is substantively narrower than the phrase ``securities of the 
type that would be granted relief under the Underwriter Exemptions,'' 
as set forth in sub-clause (iv) of the definition of a ``qualified 
ratings engagement.'' The Commenters believe that this distinction 
creates uncertainties regarding which ``transactions'' are ``similar'' 
in nature. The Commenters also state that in the current market 
conditions, few asset-backed and mortgage-backed securities of the type 
covered under the Underwriter Exemptions are being offered. The 
Commenters opine that this creates fewer opportunities for the rating 
agencies to rate the necessary securities over a rolling 12-month 
period, and that this in turn could prevent securities of the type that 
would otherwise be granted relief under the Underwriter Exemptions from 
being available to be purchased by plans. The Commenters believe that 
it is the Department's intent, as reflected in the text of the Notice, 
and more consistent with the general approach of the Underwriter 
Exemptions, that any security that is backed by the type of receivable 
that would be granted relief under the Underwriter Exemption would be 
satisfactory. Accordingly, the Commenters seek clarification that 
reference to ``similar transactions'' includes any offering of 
securities of the type that would be granted relief by the Underwriter 
Exemptions even if the securities were backed by different types of 
obligations (or combinations thereof), were issued as certificates or 
notes or were issued in transactions having different structures.
---------------------------------------------------------------------------

    \11\ See Representation 4 of the Notice on page 76775.
---------------------------------------------------------------------------

    Regarding this first issue, the Department notes that the term 
``similar transactions,'' as found in the preamble to the Notice, was 
not intended to narrow the scope of the express definition of a 
``qualified ratings engagement,'' which, as noted above, involves ``the 
offering of securities of the type that would be granted relief by the 
Underwriter Exemptions.'' The Department agrees with the Commenters 
that the term ``similar transactions'' is intended to reference an 
offering of securities of the type that has been granted relief under 
the Underwriter Exemptions, including where the securities are backed 
by a different type of obligation (or types of obligations), or were 
issued as certificates or notes, or were issued in transactions having 
different structures. In this last regard, however, the Department 
emphasizes that such different structure(s) must be of a type that is 
currently permitted by the Underwriter Exemptions.
    The second clarification sought by the Commenters relates to the 
same preamble language described above, that that ``the NRSRO must 
demonstrate that it has been selected to rate at least three similar 
transactions during the preceding 12 months.'' \12\ The Commenters seek 
clarification regarding whether the word ``selected'' means the date 
the rating agency is engaged to rate the securities, as set forth in 
the rating agency's engagement letter, or the date such securities are 
first issued. The Commenters state that otherwise, the term 
``selected'' could be subject to differing interpretations. In 
addition, the Commenters state that there can be considerable lag time 
between the date the rating agency is engaged and the date the 
securities it rates are actually issued, which can arbitrarily affect 
whether the three-engagement requirement has been met. The Commenters 
opine that this could prevent securities of the type that would 
otherwise be granted relief under the Underwriter Exemptions from being 
eligible to be purchased by plans.
---------------------------------------------------------------------------

    \12\ Id.
---------------------------------------------------------------------------

    Regarding this second issue raised by the Commenters, the 
Department notes that the three-engagement requirement is intended to 
ensure that a qualified rating agency is ``seasoned.'' As between the 
date that a rating agency is first selected and the date that the 
securities it rates are issued, the Department believes that the more 
relevant date is the date that the securities are issued. It is the 
view of the Department, therefore, that the preamble phrase, ``. . . 
the NRSRO must demonstrate that it has been selected to rate at least 
three similar transactions during the preceding 12 months,'' refers to 
the date that the securities are issued.
    Accordingly, after giving full consideration to the entire record, 
including the Comment Letter, the Department has determined to grant 
the exemption as modified herein. For a more complete statement of the 
facts and representations supporting the Department's decision to amend 
the Underwriter Exemptions, refer to the notice of proposed exemption 
(the Notice) that was published on December 28, 2012 in the Federal 
Register at 77 FR 76773. For further information regarding the Comment 
and other matters discussed herein, interested persons are encouraged 
to obtain copies of the exemption application file (Exemption 
Application No. D-11718) the Department is maintaining in this case. 
The complete application file, as well as all supplemental submissions 
received by the Department, are made available for public inspection in 
the Public Disclosure Room of the Employee Benefits Security 
Administration, Room N-1513, U.S. Department of Labor, 200 Constitution 
Avenue NW., Washington, DC 20210.

FOR FURTHER INFORMATION CONTACT: Anna Mpras Vaughan of the Department, 
telephone (202) 693-8565. (This is not a toll-free number.)

General Information

    The attention of the 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) This exemption is 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 this exemption is subject to the express 
condition that the material facts and representations contained in the 
application accurately describes all material terms of the transaction 
which is the subject of the exemption.

    Signed at Washington, DC, this 2nd day of July, 2013.
Lyssa E. Hall,
Director of Exemption Determinations, Employee Benefits Security 
Administration, U.S. Department of Labor.
[FR Doc. 2013-16386 Filed 7-8-13; 8:45 am]
BILLING CODE 4510-29-P