Cadwalader Clients & Friends Memo: Applicability to Insurance-Linked Securities of SEC Re-proposal of Shelf Eligibility Conditions for Asset-Backed Securities

Cadwalader Clients & Friends Memo: Applicability to Insurance-Linked Securities of SEC Re-proposal of Shelf Eligibility Conditions for Asset-Backed Securities

Cadwalader Wickersham Taft

On July 26, 2011 the Securities and Exchange Commission (the "SEC") issued a release (the "Proposing Release") revising and re-proposing certain rules (the "Proposed Rules") initially proposed in April 2010 related to asset-backed securities in light of the provisions added by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") and comments received on the 2010 ABS Proposals. Among other things, the 2010 ABS Proposals propose amendments to the safe harbor for exempt offerings and resales for "structured finance products" in reliance on Securities Act Rule 144A, which would include many Insurance-Linked Securities ("ILS") such as CAT bonds. Under the Proposing Release, the SEC has requested additional comment on these proposals relating to exempt offerings.

The 2010 ABS Proposals would require an issuer of a "structured finance product" to grant any purchaser, holder, and any prospective purchaser designated by a holder the right to obtain information that would be required if the offering were registered on Form S-1 or proposed Form SF-1 under the Securities Act and any ongoing information that would be required by Section 15(d) of the Exchange Act, if reporting were required under that section. The SEC staff has taken the position that ILS is a "structured finance product".

The 2010 ABS Proposal would also require such issuers to provide, upon request, asset-level disclosures in a standardized format. While asset-level disclosures are prescribed in Regulation AB for certain asset classes (i.e., residential mortgage backed securities; commercial mortgage backed securities; automobiles loans or leases; equipment loans or leases; student loans; floorplan financings; corporate debt; and resecuritizations) it is unclear how this requirement would apply to, or be satisfied in, ILS transactions, which are typically collateralized by treasury money market funds or a "repo" arrangement.

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