U.S. patent application number 11/851297 was filed with the patent office on 2008-06-26 for method for executing a single tranche synthetic abs derivative transaction.
This patent application is currently assigned to Lehman Brothers Inc.. Invention is credited to Jonathan Lai, Jeong Gu Lee.
Application Number | 20080154789 11/851297 |
Document ID | / |
Family ID | 39544297 |
Filed Date | 2008-06-26 |
United States Patent
Application |
20080154789 |
Kind Code |
A1 |
Lai; Jonathan ; et
al. |
June 26, 2008 |
METHOD FOR EXECUTING A SINGLE TRANCHE SYNTHETIC ABS DERIVATIVE
TRANSACTION
Abstract
A Single Tranche Synthetic ABS product is designed to replicate
economics returns of structured finance collateralized debt
obligations (SF CDO) securities and allow parties to express a
leveraged and/or correlation view on a custom ABS portfolio by
transferring a credit risk of a particular transacted tranche of a
portfolio in swap format. The inventions described herein account
for an available funds cap risk of the ABS securities within the
underlying portfolio in a manner equivalent to a cash analog based
on the same underlying portfolio with sequential pay structure.
Inventors: |
Lai; Jonathan; (New York,
NY) ; Lee; Jeong Gu; (Guttenberg, NJ) |
Correspondence
Address: |
MORGAN LEWIS & BOCKIUS LLP
1111 PENNSYLVANIA AVENUE NW
WASHINGTON
DC
20004
US
|
Assignee: |
Lehman Brothers Inc.
New York
NY
|
Family ID: |
39544297 |
Appl. No.: |
11/851297 |
Filed: |
September 6, 2007 |
Related U.S. Patent Documents
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Application
Number |
Filing Date |
Patent Number |
|
|
60842796 |
Sep 6, 2006 |
|
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Current U.S.
Class: |
705/36R |
Current CPC
Class: |
G06Q 40/06 20130101 |
Class at
Publication: |
705/36.R |
International
Class: |
G06Q 40/00 20060101
G06Q040/00; G06F 17/10 20060101 G06F017/10 |
Claims
1. A method comprising: providing a single tranche derivative
transaction, wherein the derivative transaction relates to a
reference portfolio, and wherein the single tranche derivative
transaction relates to a single transacted tranche within a capital
structure including a plurality of reference tranches; allocating
an available funds cap risk in the reference portfolio in reverse
sequence, the reverse sequence beginning with a most subordinate
reference tranche; determining an incurred interest shortfall
amount for each of the reference tranches; allocating one or more
interest shortfall reimbursements sequentially beginning with a
most senior reference tranche that has incurred an interest
shortfall and ending with a subordinate tranche; and determining an
incurred interest shortfall reimbursement amount for each of the
reference tranches.
2. The method of claim 1 wherein allocating the one or more
interest shortfall reimbursements comprises accounting for any
deferred or defaulted interest on a cumulative incurred interest
shortfall amount of a senior reference tranche.
3. The method of claim 1 wherein an available funds cap risk in the
single tranche derivative transaction on an ABS portfolio is
equivalent to a hypothetical sequential-pay cashflow securitization
structure based on the same ABS portfolio.
4. The method of claim 1 wherein an interest shortfall threshold
for the transacted tranche is calculated using the formula: 0 n - 1
RFA t . ##EQU00034##
5. The method of claim 4 wherein a premium of a reference tranche
is calculated using the formula: min [ ( S i * OTW i * IPS * ACT
360 ) , max ( AAP t - i + 1 m RFA t , 0 ) ] . ##EQU00035##
6. The method of claim 5 wherein the outstanding width of a
reference tranche is calculated using the formula: max[min(OPP,
X.sub.i+1)-max(X.sub.i, ALP),0].
7. The method of claim 5 wherein an aggregate portfolio premium is
calculated using the formula: PRS * OPS t * ACT 360 .
##EQU00036##
8. The method of claim 1 wherein the incurred interest shortfall
for the transacted tranche is calculated using the formula:
min(max(PIS.sub.t-PISR.sub.t-IST.sub.n,t,0), ISC.sub.n,t).
9. The method of claim 1 wherein the incurred interest shortfall
for a reference tranche is calculated using the formula: min ( max
( PIS t - PISR t - 0 i - 1 RFA t , 0 ) , RFA i , t ) .
##EQU00037##
10. The method of claim 1 further comprising determining the
incurred interest shortfall reimbursement amount for the transacted
tranche using the formula:
min(max(PISR.sub.t-PIS.sub.t-CEIS.sub.n,t,0),
CIIS.sub.n,t-1,*ISCF.sub.n,t).
11. The method of claim 1 wherein determining the incurred interest
shortfall reimbursement amount for each of the reference tranches
is performed using the formula: min ( max ( PISR t - PIS t - i + 1
m ( RCIIS t - 1 * RISCF t ) , 0 ) , RCIIS i , t - 1 * RISCF i , t )
. ##EQU00038##
12. The method of claim 10 wherein an cumulative excess interest
shortfall (CEIS) for a transacted tranche is calculated using the
formula: n + 1 m RCIIS t . ##EQU00039##
13. The method of claim 10 wherein a cumulative incurred interest
shortfall (CIIS) for the transacted tranche is calculated using the
formula:
IIS.sub.n,t-IISR.sub.n,t+(CIIS.sub.n,t-1*ISCF.sub.n,t).
14. The method of claim 11 wherein a cumulative incurred interest
shortfall (CIIS) for each reference tranche is calculated using the
formula:
RIIS.sub.i,t-RIISR.sub.i,t+(RCIIS.sub.i,t-1*RISCF.sub.i,t).
15. The method of claim 10 wherein a compounding factor for the
transacted tranche is calculated using the formula: 100 % + ( FR n
+ LIBOR t ) * ACT 360 . ##EQU00040##
16. The method of claim 11 wherein a compounding factor for each
reference tranche is calculated using the formula: 100 % + ( S i +
LIBOR t ) * ACT 360 . ##EQU00041##
17. A method comprising: providing a single tranche derivative
transaction, wherein the derivative transaction relates to a
reference portfolio, and wherein the single tranche derivative
transaction relates to a single transacted tranche within a capital
structure including a plurality of reference tranches, including at
least a transacted tranche, a mezzanine tranche, a senior tranche,
and an equity tranche; allocating a portfolio premium for the
reference portfolio in a manner equivalent to distributing periodic
income in a hypothetical sequential-pay cashflow securitization
structure; and applying a sequential allocation of the premium
payment in the capital structure and determining premium payments
for the transacted tranche and each reference tranche within the
capital structure.
18. The method of claim 17 wherein a premium of the transacted
tranche, when the transacted tranche comprises either the mezzanine
tranche or the senior tranche, is calculated using the formula: min
[ ( OTNA n , t * FR n * ACT 360 ) , max ( AAP - n + 1 m RFA t , 0 )
] . ##EQU00042##
19. The method of claim 17 wherein a premium of the transacted
tranche, when the transacted tranche comprises an equity tranche,
is calculated using the formula: max ( AAP - n + 1 m FA t , 0 ) .
##EQU00043##
20. The method of claim 19 wherein the premium is paid in an
impaired equity tranche despite full or partial impairment.
21. The method of claim 18 wherein the premium of the transacted
tranche, when the transacted tranche comprises either the mezzanine
tranche or the senior tranche, is calculated using the formula: min
[ ( S i * OTW i * IPS * ACT 360 ) , max ( AAP t - i + 1 m RFA t , 0
) ] . ##EQU00044##
22. The method of claim 21 wherein the outstanding width of the
transacted tranche is calculated using the formula: max[min(OPP,
X.sub.i+1)-max(X.sub.i, ALP),0].
23. The method of claim 21 wherein an aggregate portfolio premium
is calculated using the formula: PRS * OPS t * ACT 360 .
##EQU00045##
24. A method comprising: providing a single tranche derivative
transaction, wherein the derivative transaction relates to a
reference portfolio, and wherein the single tranche derivative
transaction relates to a single transacted tranche within a capital
structure containing a plurality of reference tranches; determining
a level of impairment of each of the plurality of reference
tranches following an occurrence of a principal loss in the
reference portfolio; allocating said principal loss in a reverse
sequence among the plurality of reference tranches beginning with a
most subordinate tranche; determining an amount of notional
principal to restore each of the plurality of reference tranches
following an occurrence of a principal shortfall reimbursement or a
writedown reimbursement in the reference portfolio; allocating said
principal shortfall reimbursement or writedown reimbursement in
sequence among the plurality of reference tranches beginning with a
most senior tranche that has been impaired and ending with a most
subordinate tranche; determining an amount of a principal reduction
for each of the plurality of reference tranches following a
principal payment in the reference portfolio; allocating the
principal payment in sequence among the plurality of reference
tranches beginning with the most senior tranche and ending with the
most subordinate tranche, and determining an outstanding tranche
notional amount of the transacted tranche and each of the plurality
of reference tranches based on the allocation of principal losses,
principal shortfall reimbursements, writedown reimbursements, and
principal payments,
25. The method of claim 24 wherein the outstanding tranche notional
amount of the transacted tranche is calculated using the formula:
max [ ( OTN n * ITF n ) - IPL n + IPR n - max ( PP - IPS + LC n , 0
) , 0 ] . ##EQU00046##
26. The method of claim 24 wherein the incurred principal loss of
the transacted tranche is calculated using the formula:
min(max(PPL.sub.t-PPR.sub.t,0),max(APL.sub.t-LT.sub.n),OTNA.sub.t-1).
27. The method of claim 24 wherein the incurred principal shortfall
reimbursement of a transacted tranche is calculated using the
formula:
min(max(PPR.sub.t-PPL.sub.t-max(APL.sub.t-1-LC.sub.i,0),0),
max(.SIGMA.IPL.sub.t-.SIGMA.IPR.sub.t-1,0)).
Description
PRIORITY APPLICATION
[0001] This application claims the benefit of U.S. Provisional
Patent Application No. 60/842,796, filed Sep. 6, 2006, titled
Single Tranche Synthetic ABS Transaction. The entire contents of
that application are incorporated herein by reference.
INTRODUCTION
[0002] Methods and specifications are described herein for
executing single tranche synthetic asset backed securities (ABS)
derivative transactions. The synthetic ABS market has experienced
exponential growth following (i) the publication of standard ISDA
documentation for single name ABS CDS transactions, and (ii) the
launch of the ABX credit index and execution of derivative
transactions thereon. Single tranche products are one of the next
stages in the evolution of the synthetic ABS space.
[0003] A Single Tranche Synthetic ABS product is generally a
derivative instrument that is designed to replicate certain
economics returns of structured finance collateralized debt
obligations (SF CDO) securities. Single tranche synthetic ABS
products can allow parties to express a leveraged and/or
correlation view on a custom ABS portfolio by transferring a credit
risk of a particular transacted tranche of a portfolio in swap
format--in essence, providing a synthetic securitization of
securitized assets. Since the transaction is provided in swap
format, a security need not be issued in connection with the
transaction. Several advantages single tranche products have over
conventional SF CDO securities include, for example, (i) superior
leverage--there is no cost of funds hurdle, (ii)
flexibility--portfolios can be customized and removing the need to
place an entire capital structure, (iii) efficiency--minimal
execution time and no fixed costs such as SPVs fees and trustee
expenses, and (iv) other advantages. Single tranche products may be
used in many applications, including as a substitute for SF CDO
securities, or as a hedge to related cash position. Although the
inventions described herein refer specifically to single tranche
synthetic ABS products, it will be understood to one of skill in
the art that the same calculations, formulae and other overarching
concepts can be applied to other transactions and instruments.
[0004] Improvements to single tranche products in the market are
described herein which, among other advantages, minimize basis risk
when hedged with a standard untranched portfolio ABS CDS trade.
[0005] In one embodiment of the invention, a method is provided
that comprises providing a single tranche derivative transaction,
wherein the derivative transaction relates to a reference
portfolio, and wherein the single tranche derivative transaction
relates to a single transacted tranche within a capital structure
including a plurality of reference tranches; allocating an
available funds cap risk in the reference portfolio in reverse
sequence, the reverse sequence beginning with a most subordinate
reference tranche; determining an incurred interest shortfall
amount for each of the reference tranches; allocating one or more
interest shortfall reimbursements sequentially beginning with a
most senior reference tranche that has incurred an interest
shortfall and ending with a subordinate tranche; and determining an
incurred interest shortfall reimbursement amount for each of the
reference tranches. Other features of the invention include that an
available funds cap risk in the single tranche derivative
transaction on an ABS portfolio is equivalent to a hypothetical
sequential-pay cashflow securitization structure based on the same
ABS portfolio.
[0006] In another embodiment, a method is provided that comprises
providing a single tranche derivative transaction, wherein the
derivative transaction relates to a reference portfolio, and
wherein the single tranche derivative transaction relates to a
single transacted tranche within a capital structure including a
plurality of reference tranches, including at least a transacted
tranche, a mezzanine tranche, a senior tranche, and an equity
tranche; allocating a portfolio premium for the reference portfolio
in a manner equivalent to distributing periodic income in a
hypothetical sequential-pay cashflow securitization structure; and
applying a sequential allocation of the premium payment in the
capital structure and determining premium payments for the
transacted tranche and each reference tranche within the capital
structure. Other features of the invention include that a premium
is paid in an impaired equity tranche despite full or partial
impairment.
[0007] In another embodiment of the invention, a method is provided
that comprises: providing a single tranche derivative transaction,
wherein the derivative transaction relates to a reference
portfolio, and wherein the single tranche derivative transaction
relates to a single transacted tranche within a capital structure
containing a plurality of reference tranches; determining a level
of impainnent of each of the plurality of reference tranches
following an occurrence of a principal loss in the reference
portfolio; allocating said principal loss in a reverse sequence
among the plurality of reference tranches beginning with a most
subordinate tranche; determining an amount of notional principal to
restore each of the plurality of reference tranches following an
occurrence of a principal shortfall reimbursement or a writedown
reimbursement in the reference portfolio; allocating said principal
shortfall reimbursement or writedown reimbursement in sequence
among the plurality of reference tranches beginning with a most
senior tranche that has been impaired and ending with a most
subordinate tranche; determining an amount of a principal reduction
for each of the plurality of reference tranches following a
principal payment in the reference portfolio; allocating the
principal payment in sequence among the plurality of reference
tranches beginning with the most senior tranche and ending with the
most subordinate tranche, and determining an outstanding tranche
notional amount of the transacted tranche and each of the plurality
of reference tranches based on the allocation of principal losses,
principal shortfall reimbursements, writedown reimbursements, and
principal payments.
BRIEF DESCRIPTION OF THE DRAWINGS
[0008] FIG. 1 depicts a diagram of a sample synthetic capital
structure for a single tranche transaction according to an
embodiment of the invention;
[0009] FIG. 2 depicts a sample matrix of a synthetic capital
structure for a single tranche transaction according to an
embodiment of the invention;
[0010] FIG. 3 depicts a chart of a comparison of a sample capital
structure and spread distribution according to an embodiment of the
invention;
[0011] FIG. 4 depicts a table of calculations for principal
shortfalls according to an embodiment of the invention;
[0012] FIG. 5 depicts a table of calculations of interest
shortfalls according to an embodiment of the invention; and
[0013] FIG. 6 depicts a table of calculations of interest shortfall
reimbursements according to an embodiment of the invention.
DETAILED DESCRIPTION
[0014] Single tranche derivative transactions represent an
intersection of derivative and securitization technologies. In
general, a single tranche derivative transaction is a synthetic
securitization of credit default swaps (CDS). The underlying CDS
for this particular single tranche derivative transaction has
`pay-as-you-go` (PAUG) settlement. The use of PAUG settlement is
generally limited to asset classes such as ABS, Commercial Mortgage
Backed Securities (CMBS), CDO securities, and other securitized
products. In CDS with PAUG settlement, conventional credit events
such as bankruptcy, restructuring and failure to pay are replaced
with credit events that are usually directly linked to differences
between actual and expected cashflows of a reference obligation.
Such credit events include principal shortfalls, writedowns, and
interest shortfalls. In general, a reference portfolio is agreed to
by the counterparties in the credit derivative transaction and
comprised of fixed income securities including but not limited to
corporate bonds/loans, ABS, CMBS, and CDO securities.
[0015] Conventional credit derivative transactions referencing
corporate issuers generally have (i) a fixed tenor (a tenor is the
term or life of a contract) and a notional (which is a nominal
amount underlying a derivatives contract), and (ii) cash or
physical settlement with respect to the entire transaction
following a single credit event. In contrast, credit derivative
transactions with PAUG settlement have (i) a tenor and notional
linked to the respective maturity and outstanding principal of a
specific obligation, and (ii) PAUG settlement payments are directly
linked to losses on a specific obligation and recoveries,
reimbursements or other payments on such losses are passed through.
Given the complexity of the underlying derivative, applying
securitization technology on this class of credit derivative
represents a challenging structuring endeavor.
[0016] The securitization framework applied to a single tranche
synthetic ABS product described herein is that of a sequential pay
structure. Sequential pay entails that interest and principal
collections are distributed from the top of a capital structure to
the bottom; as a result, losses on the portfolio thereby sustained
from bottom to the top.
[0017] One example of a capital structure is provided in FIG. 1. As
shown, a capital structure can have a plurality of tranches, such
as five tranches 15, which can have specified characteristics 90,
such as a notional, attachment point, detachment point, fixed rate,
loss threshold, loss cap, or other characteristics. Among the five
tranches, there is an equity tranche (25), one or more
mezzanine/senior tranches (50), and a super senior tranche 75.
[0018] A translation of sequential pay structure to the single
tranche derivative context would entail the following:
[0019] (i) A portfolio premium is typically allocated sequentially
through the capital structure (e.g., from a senior tranche to a
subordinate tranche). Although there may be a stated accrual rate
for each reference tranche in the capital structure, a tranche swap
premium is typically capped at a remaining portfolio swap premium
after subtracting the swap premium paid to each senior reference
tranche. In general, a credit protection buyer pays the credit
protection seller such tranche swap premium periodically.
[0020] (ii) Principal payments are generally allocated in sequence
(e.g., from a senior most tranche to the subordinate tranches), and
net principal losses are allocated in reverse sequence (e.g., from
a subordinate tranche to the senior tranches). Net principal
reimbursement are allocated in sequence beginning with the most
senior tranche to have been previously impaired, then to a
subordinate tranche. (An impaired tranche is one that has incurred
a principal loss in the form of a principal shortfall or
writedown.) If the net change causes a reference tranche to be
impaired (or further impaired), the credit protection seller makes
a payment to the credit protection buyer. If the net change causes
the reference tranche notional to be reinstated (in part or in
full), the credit protection buyer makes a payment to the credit
protection seller.
[0021] (iii) A net interest shortfall is typically allocated in
reverse sequence (e.g., beginning with a subordinate tranche to the
senior tranches). Net interest shortfall reimbursements are
allocated in sequence beginning with the most senior reference
tranche to have suffered an incurred interest shortfall then to a
subordinate tranche. The allocations of interest shortfalls are
usually based on a distribution of interest income/swap premium
within the capital structure rather than the principal
attachment/detachment points. As illustrated in FIG. 3, which
compares capital structure and corresponding spread distribution,
there are typically disparities between distribution of the risk of
principal loss and available funds cap risk across the capital
structure.
[0022] In general, a credit protection seller may not be required
to make an interest/principal shortfall payment on a particular
tranche unless the net periodic interest shortfall exceeds the sum
of the swap premium of each subordinate reference tranche; and the
amount paid is usually capped at the amount of the swap premium of
such tranche. The credit protection buyer is typically not required
to make a reimbursement payment unless a net periodic interest
shortfall reimbursement exceeds the sum of the cumulative interest
shortfall amount paid under each senior reference tranche (which
may be increased by compound interest); the amount paid may be
capped at the cumulative interest shortfall amounts paid in respect
of such tranche (as increased by compound interest).
[0023] One of the significant improvements with respect to single
tranche products described herein over other single tranche
products in the market is the transaction accounts for the
available funds cap risk (AFC risk) of the ABS securities within
the underlying portfolio and does so in a manner equivalent to a
cash analog based on the same underlying portfolio with sequential
pay structure. Note that AFC risk is expressed in the form of
interest shortfall amounts in the related CDS with PAUG settlement.
Due to the complexities involved in engineering/structuring a
derivative transaction with these features as detailed above,
single tranche products in the market typically do not address AFC
risk or address it in a very limited manner.
[0024] The development of such a single tranche product provides
substantial benefits to both derivative dealers and customers. For
dealers, among other advantages, it minimizes basis risk between
the single tranche transaction and related single name ABS CDS
hedges (which do typically account for AFC risk). For customers,
the single tranche product becomes a perfect substitute for certain
SF CDO securities with all the aforementioned advantages of
derivatives over cash bonds.
[0025] This technology and inventions described herein may be
applied to other asset classes (e.g. CMBS, SF CDOs.) in respect of
which the related derivatives trade with `pay-as you go` settlement
or other settlement methods.
[0026] Swap Premium
[0027] A swap premium may be allocated sequentially through a
capital structure in order beginning with a senior-most tranche to
the subordinate tranches. Although there may be a stated accrual
rate for each reference tranche in the capital structure, the swap
premium for a particular tranche is capped at the remaining
portfolio swap premium after subtracting the swap premium paid to a
senior reference tranche.
[0028] A swap premium of a mezzanine and senior tranche may be
calculated as the lesser of (i) a product of a fixed rate of such
tranche and an outstanding tranche notional, and (ii) the aggregate
portfolio premium net of premium payments allocated to each senior
reference tranche, using the formula:
[ ( O T N A n , t * FR n * A C T 360 ) , max ( A A P - n + 1 m R F
A t , 0 ) ] . ##EQU00001##
[0029] The swap premium of an equity tranche may be calculated as
the aggregate portfolio premium net of premium payments allocated
to each senior reference tranche, using the formula:
max ( A A P - n + 1 m FA t , 0 ) . ##EQU00002##
[0030] Using such formulas to calculate a swap premium allows,
among other things, a fully (or partially) impaired equity tranche
to receive periodic premium payments despite full (or substantially
full) principal loss.
[0031] Principal
[0032] Principal payments are typically allocated in sequence
beginning with the senior-most tranche to the subordinate tranches.
The outstanding tranche notional amount of a tranche is calculated
based on an original notional, incurred principal losses, incurred
principal reimbursements, the excess of aggregate principal
payments on the reference portfolio over the initial portfolio size
less the loss cap, using the formula:
max [ ( O T N n * I T F n ) - I P L n + I P R n - max ( PP - I P S
+ LC n , 0 ) , 0 ] . ##EQU00003##
[0033] Principal losses are typically allocated in the capital
structure in a reverse sequence beginning with the most subordinate
tranche to the senior tranches. Incurred principal losses with
respect to a tranche may be calculated as an amount equal to the
lesser of: (i) aggregate periodic principal losses minus aggregate
periodic principal reimbursements (subject to a minimum of zero);
and (ii) the aggregate principal loss amount minus the principal
loss threshold of such tranche, (subject to a minimum of zero); and
(iii) the outstanding tranche notional amount of such tranche from
the previous accrual period, using the formula:
min(max(PPL.sub.t-PPR.sub.t,0), max(APL.sub.t-LT.sub.n),
OTNA.sub.t-1).
[0034] Principal reimbursements are typically allocated in a
sequence beginning with the most senior tranche to have been
previously impaired prior to a payment date. Generally, an incurred
principal reimbursement amount with respect to a tranche is
calculated based on the lesser of: (i), aggregate periodic
principal reimbursement amounts, minus aggregate periodic principal
loss amounts, minus, the excess of aggregate principal losses over
the loss cap; and, (ii) the difference of sum of all incurred
principal losses as of the current accrual period and the sum of
all incurred principal reimbursements as of the prior accrual
period, using the formula:
min(max(PPR.sub.t-PPL.sub.t-max(APL.sub.t-1-LC.sub.1,0),0),
max(.SIGMA.IPL.sub.t-.SIGMA.IPR.sub.t-1,0))
[0035] If a net change in principal, or other measurement of a
reference tranche causes the transacted or reference tranche to be
impaired (or further impaired), a credit protection seller may make
a payment to a credit protection buyer that equals the incurred
principal loss (using, for example, the above formula). If the net
change causes the reference tranche notional to be reinstated or
restored (in part or in full), the credit protection buyer may make
a payment to the credit protection seller equal to an incurred
principal reimbursement (using, for example, the above formula).
Examples of calculations of principal shortfall calculations for a
particular tranche of the capital structure are shown in FIG.
4.
Interest Shortfalls
[0036] Typically, interest shortfalls are allocated in a reverse
sequence beginning with the most subordinate reference tranche. To
the extent that a shortfall exists, under a single tranche
transaction, a credit protection seller would not be required to
make an interest shortfall payment unless a net interest shortfall
for a particular period exceeds a certain interest shortfall
threshold and such interest shortfall payment may also be subject
to an interest shortfall cap, such amount, an incurred interest
shortfall amount.
[0037] The incurred interest shortfall amount for the transacted
tranche may be calculated as a lesser of (i) a net periodic
interest shortfall less the interest shortfall threshold, and (ii)
the interest shortfall cap, using the formula:
min(max(PIS.sub.t-PISR.sub.t-IST.sub.n,t, 0), ISC.sub.n,t).
[0038] The incurred interest shortfall amount for each reference
tranche may be calculated as a lesser of (i) a net periodic
interest shortfall less an aggregate periodic premium payment of
each subordinate reference tranche, and (ii) the periodic premium
payment of such reference tranche, using the formula:
min ( max ( P I S t - P I S R t - 0 i - 1 R F A t , 0 ) , R F A i ,
t ) . ##EQU00004##
[0039] The inputs required to determine the incurred interest
shortfalls include the following which may be calculated using the
representative formulas:
Interest Shortfall Threshold = 0 n - 1 R F A t . ##EQU00005##
[0040] Reference Tranche Fixed Amounts:
min [ ( S i * O T W i * I P S * A C T 360 ) , max ( A A P t - i + 1
m R F A t , 0 ) ] . ##EQU00006##
[0041] The inputs required to determine the reference tranche fixed
amounts include the following which may be calculated using the
representative formulas:
outstanding tranche width = max [ min ( O P P , X i + 1 ) - max ( X
i , A L P ) , 0 ] ##EQU00007## aggregate asset premium = P R S * O
P S t * A C T 360 ##EQU00007.2##
[0042] Interest Shortfall Reimbursements
[0043] Interest shortfall reimbursements may be allocated in
sequence beginning with a most senior reference tranche to have
suffered an incurred interest shortfall prior to such payment date.
A credit protection buyer may not be required to make a
reimbursement payment unless or until a net interest shortfall
reimbursement for a particular period is greater than the incurred
interest shortfall amount. Payments in respect of interest
reimbursement typically do not exceed a cumulative incurred
interest shortfall of a reference/transacted tranche. To similate
the effect of deferred or defaulted interest within hypothetical
securitization structure, cumulative incurred interest shortfalls
for each tranche are increased by compounded interest each accrual
period they remain unreimbursed
[0044] Incurred interest shortfall reimbursement amount for the
transacted tranche calculated as a lesser of (i) the net periodic
interest shortfall reimbursement less a cumulative excess interest
shortfall amount, and (ii) a product of the cumulative incurred
interest shortfall from the previous period and a compounding
factor of the transacted tranche, using the formula:
min(max(PISR.sub.t-PIS.sub.t-CEIS.sub.n,t,0), CIIS.sub.n,t-1*
ISCF.sub.n,t).
[0045] Incurred interest shortfall reimbursement amount for a
reference tranche is calculated as a lesser of (i) a net periodic
interest shortfall reimbursement less a cumulative excess interest
shortfall amount of each reference tranche, and (ii) a product of a
cumulative incurred interest shortfall of each reference tranche
from a prior period and a compounding factor of such reference
tranche, using the formula:
min ( max ( PISR t - PIS t - i + 1 m ( RCIIS t - 1 * RISCF t ) , 0
) , RCIIS i , t - 1 * RISCF i - t ) . ##EQU00008##
[0046] The inputs required to determine the incurred interest
shortfalls include the following which may be calculated using the
representative formulas:
Cumulative Excess Interest Shortfall Amount = n + 1 m RCIIS t .
Cumulative Incurred Shortfall Amount for the transacted tranche =
IIS n , t - IISR n , t + ( CIIS n , t - 1 * ISCF n , t )
##EQU00009## Cumulative Incurred Interest Shortfall Amount for a
reference tranche = RIIS i - t - RIISR i , t + ( RCIIS i , t - 1 *
RISCF i , t ) ##EQU00009.2## Compounding Factor = 100 % + ( FR n +
LIBOR t ) * ACT 360 ##EQU00009.3## Reference Tranche Compounding
Factor = 100 % + ( S i + LIBOR t ) * ACT 360 ##EQU00009.4##
[0047] An exemplary embodiment of the transaction is described in
termsheet attached as Appendix A according to the following terms
and conditions for a single tranche synthetic ABS transaction. A
swap confirmation template utilized by derivative counterparties in
connection with the execution of this single tranche synthetic ABS
transaction is attached as Appendix B.
[0048] It will be appreciated that the present invention has been
described by way of example only, and that improvements and
modifications may be made to the invention without departing from
the scope or spirit thereof.
TABLE-US-00001 APPENDIX A Single Transche Synthetic ABS Transaction
Indicative Terms and Conditions Portfolio: As specified in Annex B.
Party A: LB Party B: [ ] Trade Date: [ ] Effective Date: [ ]
Scheduled Termination [ ] Date: Termination Date: The day falling
one year after the date upon which the Outstanding Portfolio Size
is reduced to zero; unless, the Outstanding Portfolio Size is
increased to an amount greater then zero within such year. Floating
Rate Payer: Party [A] [B] ("Buyer") Fixed Rate Payer: Party [A] [B]
("Seller") Calculation Agent: Party A Fixed Rate (FR): [ ]% Fixed
Amount (FA): min [ ( OTNA n , t * FR n * ACT 360 ) , max ( AAP - n
+ 1 m RFA t , 0 ) ] ##EQU00010## Aggregate Asset Premium(AAP) PRS *
OPS t * ACT 360 ##EQU00011## Detachment Point (DP): [ ]% Attachment
Point (AP): [ ]% Weighting (W): [ ]% Original Transche Notional USD
[ ] (OTN): Initial Transche Factor [ ]% (ITF): Outstanding Tranche
Notional Amount (OTNA): Initial Portfolio Size (IPS): OTN n DP n -
AP n ##EQU00012## Outstanding Portfolio Size .SIGMA.RONA.sub.t
(OPS): Loss Threshold (LT): AP.sub.n * IPS Loss Cap (LC): DP.sub.n
* IPS Reference Obligation For each Ref Ob, (IPS*W*Initial Factor)-
.SIGMA.PP - .SIGMA.PL + .SIGMA.PR Notional Amount (RONA): Interest
Shortfalls (IS): Interest Shorfall Amounts Interest Shortfall
Interest Shortfall Reimbursement Amounts Reimbursements (ISR)
Principal Payment (PP) Principal Payment Amounts Principal Loss
(PL): Writedown Amounts, Principal Shortfall Amounts Principal
Reimbursement Writedown Reimbursement Amounts, Principal Shortfall
(PR): Reimbursement Amounts Settlement Method: Incurred Interest
Shortfalls min (max (PIS.sub.t - PISR.sub.t - IST.sub.n,t, 0),
ISC.sub.n,t) (IIS) Periodic Interest Shortfalls .SIGMA.IS.sub.t
(PIS) Cumulative Incurred = IIS.sub.n,t - IISR.sub.m,t,
(CIIS.sub.n,t-1 * ISCF.sub.n,t) Interest Shortfalls (CIIS) Interest
ShortfallCompounding Factor(ISCF) 100 % + ( ( FR n + LIBOR t ) *
ACT 360 ##EQU00013## Interest Shortfall As set forth in Annex A
Threshold (IST) Interest Shortfall Cap RFA.sub.n,t (ISC) Incurred
Interest Shortfall min(max (PISR.sub.t - PIS.sub.t - CEIS.sub.n,t,
0), CIIS.sub.n,t-1 * ISCF.sub.n,t) Reimbursements (IISR) Periodic
Interest Shortfall .SIGMA.ISR.sub.t Reimbursements (PISR)
Cumulative Excess Interest As set forth in Annnex A Shortfalls
(CEIS) Incurred Principal Losses min (max (PPL.sub.t - PPR.sub.t,
0), max (APL.sub.t - LT.sub.n), OTNA.sub.t-1) (IPL) Periodic
Principal Losses .SIGMA.PL.sub.t (PPL) Aggregate Principal Losses
max (.SIGMA.PL - .SIGMA.PR, 0) (APL) Incurred Principal min (max
(PPR.sub.t - PPL.sub.t - max (APL.sub.t-1 - LC.sub.i, 0), 0), max
(.SIGMA.IPL.sub.t - Reimbursements (IPR) .SIGMA.IPR.sub.t-1, 0) )
Periodic Principal .SIGMA.PR.sub.t Reimbursements (PPR) .sub.t = an
amount in respect of a specific accural period.
TABLE-US-00002 Annex A Reference Tranche Reference Spread Lower
Strike Upper Strike 1 S.sub.1 = [ ] % X.sub.1 = [0] % X.sub.2 = [ ]
% 2 S.sub.2 = [ ] % X.sub.2 = [ ] % X.sub.3 = [ ] % 3 S.sub.3 = [ ]
% X.sub.3 = [ ] % X.sub.4 = [ ] % 4 S.sub.4 = [ ] % X.sub.4 = [ ] %
X.sub.5 = [ ] % 5 S.sub.5 = [ ] % X.sub.5 = [ ] % X.sub.6 = [100] %
S.sub.i = Reference Tranche Spread X.sub.i = Reference Tranche
Attachment X.sub.i+1 = Reference Tranche Detachment
TABLE-US-00003 Interest ShortfallThreshold (IST) 0 n - 1 RFA t
##EQU00014## Aggregate LossPercentage (ALP) APL IPS ##EQU00015##
OutstandingPortfolio Percentage(OPP) OPS IPS + ALP ##EQU00016##
Outstanding Tranche max[min(OPP,X.sub.i+1)-max(X.sub.i,ALP),0]
Width (OTW.sub.i) Reference TrancheFixed Amountt(RFA.sub.i) min [ (
S i * OTW i * IPS * ACT 360 ) , max ( AAP t - n + 1 m RFA t , 0 ) ]
##EQU00017## Cumulative ExcessInterest Shortfall(CEIS) n + 1 m
RCIIS t ##EQU00018## Reference TrancheIncurred InterestShortfalls
(RIIS.sub.i) min ( max ( PIS t - PISR t - 0 i - 1 RFA t , 0 ) , RFA
i , t ) ##EQU00019## Reference TrancheIncurred
InterestShortfallReimbursements(RIISR.sub.i) min ( max ( PISR t -
PIS t - i + 1 m ( RCIIS t - 1 * * RISCF t ) , 0 ) RCIIS i , t - 1 *
RISCF i , t ) ##EQU00020## Reference TrancheInterest
ShortfallCompounding Factor(RISCF.sub.i) 100 % + ( S i + LIBOR t )
* ACT 360 ##EQU00021## Reference Tranche
RIIS.sub.i,t-RIISR.sub.i,t+(RCIIS.sub.i,t-1*RISCF.sub.i,t)
Cumulative Incurred Interest Shortfall (RCIIS.sub.i) t = an amount
in respect of a specific accrual period
TABLE-US-00004 Annex B [[EXEMPLARY PORTFOLIO ]] Formula Key: (AAP)
AggregateAsset Premium PRS * OPS t * ACT 360 ##EQU00022## ALP
(AggregateLoss Percentage) APL IPS ##EQU00023## AP (Attachment [ ]%
Point) APL (Aggregate max (.SIGMA.PL - .SIGMA.PR,0) Principal
Losses) CEIS (CumulativeExcess InterestShortfalls) n + 1 m RCIIS t
##EQU00024## CIIS (Cumulative IIS.sub.n,t, - IISR.sub.n,t, +
(CIIS.sub.n,t-1 * ISCF.sub.n,t) Incurred Interest Shortfalls) DP
(Detachment [ ]% Point) FR (Fixed Rate) [ ]% FA (FixedAmount): min
[ ( OTNA n , t * FR n * ACT 360 ) , max ( AAP - n + 1 m FA t , 0 )
] ##EQU00025## IIS (Incurred min (max (PIS.sub.t - PISR.sub.t -
IST.sub.n,t,0), ISC.sub.n,t) Interest Shortfalls) IISR (Incurred
min (max(PISR.sub.t - PIS.sub.t-CEIS.sub.n,t, 0), CIIS.sub.n,t-1 *
ISCF.sub.n,t) Interest Shortfall Reimburements) IPL (Incurred min
(max (PPL.sub.t, - PPR.sub.t, 0), max (APL.sub.t, - LT.sub.n),
OTNA.sub.t-1) Principal Losses) IPR (Incurred min (max (PPR.sub.t -
PPL.sub.t - max (APL.sub.t-1 - LC.sub.i, 0), 0), max
(.SIGMA.IPL.sub.t - .SIGMA.IPR.sub.t-1, Principal 0))
Reimbursements) IPS (InitialPortfolio Size) OTN n DP n - AP n
##EQU00026## ISC (Interest RFA.sub.n,t Shortfall Cap) ISCF
(InterestShortfallCompoundingFactor) 100 % + ( FR n + LIBOR t ) *
ACT 360 ##EQU00027## ISR (Interest [ ]% Shortfall Reimbursements)
IST (InterestShortfallThreshold) 0 n - 1 RFSA t ##EQU00028## LC
(Loss Cap) DP.sub.n * IPS LT (Loss AP.sub.n * IPS Threshold) OTN
(Original USD [ ] Tranche Notional) OTNA (Outstanding Tranche
Notional Amount) OTW (Oustanding max[min(OPP,X.sub.i+1) -
max(X.sub.i, ALP),0] Tranche Width) OPP
(OutstandingPortfolioPercentage) OPS IPS + ALP ##EQU00029## OPS
(Outstanding .SIGMA.RONA.sub.t Portfolio Size) PIS (Periodic
.SIGMA.IS.sub.t Interest Shortfalls) PISR (Periodic
.SIGMA.ISR.sub.t Interest Shortfall Reimbursements) PL (Principal
Writedown Amounts, Principal Shorfall Amounts Loss) PP (Principal
Principal Payment Amounts Payments) PPL (Periodic .SIGMA.PL.sub.t
Principal Losses) PPR (Periodic .SIGMA.PR.sub.t Principal
Reimbursements) PR (Principal Writedown Reimburesment Amounts,
Principal Shortfall Reimbursement Reimburement) Amounts PRS
(Portfolio [ ]% Reference Spread RONA (Reference For each Ref Ob,
(IPS * W * Initial Factor) - .SIGMA.PP - .SIGMA.PL + .SIGMA.PR
Obligation Notional Amount) Reference Tranche RIIS.sub.i,t -
RIISR.sub.i,t + (RCIIS.sub.i,t-1 * RISCF.sub.i,t) Cumulative
Incurred Interest Shortfall (RCIIS) Reference TrancheFixed
Amount(RFA) min [ ( S i * OTW i * IPS * ACT 360 ) , max ( AAP t - i
+ 1 m RFA t , 0 ) ] ##EQU00030## Reference TrancheIncurred
InterestShortfalls (RIIS) min ( max ( PIS t - PISR t - 0 i - 1 RFA
t , 0 ) , RFA i , t ) ##EQU00031## Reference TrancheIncurred
ShortfallReimbursements(RIISR) min ( max ( PISR t - PIS t - i + 1 m
( RCIIS t - 1 * RISCF t ) , 0 ) RCIIS i , t - 1 * RISCF i , t )
##EQU00032## Reference TrancheInterest ShortfallCompoundingFactor
(RISCF) 100 % + ( S i + LIBOR t ) * ACT 360 ##EQU00033## W
(Weighting) [ ]%
Appendix B
Transaction
[0049] Date: [0050] To: [ ] [0051] From: LB [0052] RE: Single
Tranche Credit Derivative Transaction relating to an asset backed
Security Portfolio
[0053] The purpose of this communication (the "Confirmation") is to
confirm the terms and conditions of the single tranche Credit
Derivative Transaction relating to a portfolio of mortgage-backed
securities entered into on the Trade Date specified below (the
"Transaction").
[0054] The definitions and provisions contained in the 2003 ISDA
Credit Derivatives Definitions (the "Credit Derivatives
Definitions"), as published by the International Swaps and
Derivatives Association, Inc., are incorporated into this
Confirmation. In the event of any inconsistency between the Credit
Derivatives Definitions and this Confirmation, this Confirmation
shall govern.
[0055] [This Confirmation supplements, forms a part of, and is
subject to, the ISDA Master Agreement, dated as of [date], as
amended and supplemented from time to time (the "Agreement"),
between LB [Special Financing Inc.] ("Party A") and [ ] ("Party
B"). All provisions contained in the Agreement govern this
Confirmation except as expressly modified below.
[0056] References in this Confirmation to the "Reference
Obligation" shall be to the terms of the Reference Obligation (as
defined below) set out in the Underlying Instruments (as defined
below) as amended from time to time unless otherwise specified
below.
[0057] The terms of the Transaction to which this Confirmation
relates are as follows:
1. General Terms:
[0058] Trade Date: [ ] [0059] Effective Date: [ ] [0060] Scheduled
Termination [ ] [0061] Date: [0062] Termination Date
Notwithstanding Section 1.7 of Credit Derivatives Definitions, the
day falling one year after the date upon which the Outstanding
Portfolio Size is reduced to zero and the Outstanding Portfolio
Size is zero for at least one year. [0063] Floating Rate Payer:
Party [A] ("Buyer") [0064] Fixed Rate Payer: Party [B] ("Seller")
[0065] Attachment Point: [ ]% [0066] Detachment Point: [ ]% [0067]
Weighting: [1% [0068] Original Tranche Notional: USD [ ] [0069]
Initial Tranche Factor: [ ]% [0070] Outstanding Tranche An amount,
as of the date of determination, equal to: [0071] Notional
Amount.sup.1: (i) the product of the Original Tranche Notional and
the Initial Tranche Factor; plus, [0072] (ii) the sum of each
incurred Principal Reimbursement Amount; minus, [0073] (iii) the
sum of each Incurred Principal Loss Amount; minus, [0074] (iv) the
greater of (a) an amount equal to (I) the sum of each Principal
Payment Amount, minus (II) the Initial Portfolio, plus (III) the
Loss Cap; and (b) zero; provided, if such amount is less than zero,
the Outstanding Tranche Notional Amount shall be zero. .sup.1
Additional language required for trades with Reference Obligations
with uncured principal losses and interest shortfalls prior to the
trade date. [0075] Tranche Width: A percentage equal to the
Detachment Point minus the Attachment Point. [0076] Initial
Portfolio Size An amount equal to the Original Tranche Notional
divided by the Tranche Width. [0077] Outstanding Portfolio Size: An
amount, as of the relevant date of determination, equal to the sum
of the Reference Obligation Notional Amounts in respect of each
Reference Obligation. [0078] Loss Threshold An amount equal to the
product of the Initial Portfolio Size and the Attachment Point.
[0079] Loss Cap: An amount equal to the product of the Initial
Portfolio Size and the Detachment Point. [0080] Reference
Obligation With respect to each Reference Obligation, an amount, as
of the [0081] Notional Amount: relevant date of determination,
equal to [0082] (i) the product of (a) the Initial Face Amount and
(b) Initial Factor (in respect of such Reference Obligation);
minus, [0083] (ii) the sum of each Principal Payment Amount in
respect of such Reference Obligation; minus, [0084] (iii) sum of
each Principal Loss Amount in respect of such Reference Obligation;
plus, [0085] (iv) the sum of each Principal Reimbursement Amount in
respect of such Reference Obligation; provided, if such amount is
less than zero, the Reference Obligation Notional Amount in respect
of such Reference Obligation shall be zero. [0086] Calculation
Agent: [Party A] [0087] Calculation Agent City: New York [0088]
Business Days New York and London [0089] Business Day Convention:
Following (which, with the exception of the Effective Date, the
Final Amortization Date, each Reference Obligation Payment Date and
the period end date of each Reference Obligation Calculation
Period, shall apply to any date referred to in this confirmation
that falls on a day that is not a Business Day). [0090] Reference
Entity Each entity listed in Annex A attached hereto; thereafter,
any entity that succeeds to the obligations of such Reference
Entity under the related Reference Obligation. [0091] Section 2.2
of the Credit Derivatives Definitions shall not apply. [0092]
Reference Obligation The obligation set out opposite the applicable
Reference Entity in Annex A. Section 2.30 of the Credit Derivatives
Definitions shall not apply. [0093] The Reference Obligations are
used herein solely to make certain calculations hereunder and there
is no requirement that Buyer or Seller own any of the Reference
Obligations. [0094] Initial Face Amount: With respect to each
Reference Obligation, an amount equal to the product of (i) the
Initial Portfolio Size, and (ii) the Weighting. [0095] Initial
Factor With respect to a Reference Obligation, the factor set forth
opposite the relevant Reference Obligation in Annex A. [0096]
Applicable Percentage On any day, with respect to each Reference
Obligation, a percentage equal to A divided by B. [0097] "A" means,
with respect to a Reference Obligation, the product of the Initial
Face Amount and the Initial Factor. [0098] "B" means, with respect
to a Reference Obligation, the product of the Original Principal
Amount and the Initial Factor. [0099] (i) as increased by the
outstanding principal balance of any further issues by the
Reference Entity that are fungible with and form part of the same
legal series as such Reference Obligation; and [0100] (ii) as
decreased by any cancellations of some or all of the Outstanding
Principal Amount resulting from purchases of such Reference
Obligation by or on behalf of the Reference Entity. [0101] Initial
Payment If an Initial Payment Payer and an Initial Payment Amount
are specified below, the Initial Payment Payer shall pay an amount
equal to the Initial Payment Amount to the other party on the date
that is five Business Days following the Trade Date [0102] Initial
Payment Payer: [ ] [Not Applicable] [0103] Initial Payment Amount:
USD [ ] [Not Applicable]
2. Fixed Payments
[0103] [0104] Fixed Rate: [ ]% [0105] Fixed Rate Payer Period [The
25th calendar day of each month. End Date: [0106] Fixed Rate Payer
Payment [The fifth Business Day following each Fixed Rate Payer
Period Dates: End Date. [0107] Fixed Rate Day Count ACT/360 [0108]
Fraction: [0109] Fixed Amount If the Attachment Point is equal to
zero, an amount, subject to a minimum of zero, equal to: [0110] (i)
the Aggregate Asset Premium; minus, [0111] (ii) the sum of the
Reference Tranche Fixed Amount for each Reference Tranche that has
an Upper Strike that is greater than the Detachment Point. If the
Attachment Point is not equal to zero, an amount equal to the
lesser of: [0112] (i) the product of: [0113] (a) the Fixed Rate;
[0114] (b) an amount equal to: [0115] (1) the sum of the
Outstanding Tranche Notional Amount as of 5:00 p.m. in the
Calculation Agent City on each day in the related Fixed Rate Payer
Calculation Period; divided by [0116] (2) the actual number of days
in the related Fixed Rate Payer Calculation Period; and [0117] (c)
the Fixed Rate Day Count Fraction; and [0118] (ii) an amount,
subject to a minimum of zero, equal to: [0119] (a) the Aggregate
Asset Premium; minus [0120] (b) the sum of the Reference Tranche
Fixed Amount for each Reference Tranche that has an Upper Strike
that is greater than the Detachment Point. [0121] Aggregate Asset
Premium: Means, with respect to a Fixed Rate Payer Calculation
Period, and amount equal to the product of: [0122] (i) the
Portfolio Reference Spread; [0123] (ii) an amount equal to: [0124]
(a) the sum of the Outstanding Portfolio Size as of 5:00 pm in the
Calculation Agent City on each day in the related Fixed Rate Payer
Calculation Period; divided by, [0125] (b) the actual number of
days in the related Fixed Rate Payer Calculation Period; and,
[0126] (iii) the relevant Fixed Rate Day Count Fraction.
3. Fixed Payments
[0126] [0127] Floating Rate Payer In relation to one or more
Floating Amount Events, the first Fixed [0128] Payment Dates Rate
Payer Payment Date falling at least two Business Days after
delivery of a notice by the Calculation Agent to the parties or a
notice by Buyer to Seller (each such notice, a "Floating Amount
Event Notice") containing a description of the facts relevant to
the determination that one or more Floating Amount Events have
occurred and showing in reasonable detail the related Floating
Amount (if any) was calculated. [0129] Notwithstanding anything
herein to the contrary, Buyer and Calculation Agent may each
deliver one Floating Amount Event Notice with respect to each
Floating Rate Payer Payment Date; [0130] provided, the later
Floating Amount Event Notice (if any) must include each Floating
Amount Event in the earlier Floating Amount Event Notice; provided
further, the Floating Amount on such Floating Rate Payer Payment
Date shall be the amount specified in the last Floating Amount
Event Notice delivered with respect to such Floating Rate Payer
Payment Date. [0131] Floating Payments Seller shall pay the
relevant Floating Amount to Buyer on the relevant Floating Rate
Payer Payment Date. [0132] For avoidance of doubt, Seller shall
have no obligation to pay a Floating Amount in respect of a
Floating Amount Event that occurs outside the Term of this
Transaction. For the avoidance of doubt, the Conditions to
Settlement under the Credit Derivatives Definitions shall not
apply. [0133] Floating Amount Event: A Writedown, a Failure to Pay
Principal or an Interest Shortfall. [0134] Floating Amount With
respect to each Floating Rate Payer Payment Date, an amount equal
to the sum of: [0135] (i) the Incurred Principal Loss Amount(s) (if
any) specified in a Floating Amount Event Notice delivered after
the immediately preceding Floating Rate Payer Payment Date; [0136]
and, [0137] (ii) the Incurred Interest Shortfall Amount(s) (if any)
specified in a Floating Amount Event Notice delivered after the
immediately preceding Floating Rate Payer Payment Date. [0138] 4.
Additional Fixed [0139] Payments: [0140] Additional Fixed Amount In
relation to an Additional Fixed Amount Event with respect to a
Payment Dates Reference Obligation, the first Fixed Rate Payer
Payment Date falling at least two Business Days after delivery of a
notice by the Calculation Agent to the parties or a notice by
Seller to Buyer (each such notice, an "Additional Fixed Event
Notice") containing a description of the facts relevant to the
determination that an Additional Fixed Amount Event has occurred
and showing in reasonable detail the related Additional Fixed
Amount (if any) was calculated. [0141] Notwithstanding anything
herein to the contrary, Seller and Calculation Agent may each
deliver one Additional Fixed Amount Event Notice with respect to
each Additional Fixed Amount Payment Date; provided, the later
Additional Fixed Amount Event Notice (if any) must include each
Additional Fixed Amount Event in the earlier Additional Fixed
Amount Event Notice; provided further, the Additional Fixed Amount
on such Additional Fixed Amount Payment Date shall be the amount
specified in the last Additional Fixed Amount Event Notice
delivered with respect to such Additional Fixed Amount Payment
Date.] Additional Fixed Buyer shall pay the relevant Additional
Fixed Amount to Seller on Payments: the relevant Additional Fixed
Amount Payment Date. [0142] For avoidance of doubt, Buyer shall
have no obligation to pay an [0143] Additional Fixed Amount in
respect of an Additional Fixed Amount Event that occurs outside the
Term of this Transaction. Additional Fixed Payment A Writedown
Reimbursement, a Principal Shortfall
Event: Reimbursement or an Interest Shortfall Reimbursement.
[0143] [0144] Additional Fixed Amount: With respect to each
Additional Fixed Amount Payment Date, an amount equal to the sum
of: [0145] (i) the Incurred Principal Reimbursement Amount(s) (if
any) specified in an Additional Fixed Amount Event Notice delivered
after the immediately preceding Additional Fixed Amount Payment
Date; and [0146] (ii) the Incurred Interest Shortfall Reimbursement
Amount(s) [0147] (if any) specified in an Additional Fixed Amount
Event Notice delivered after the immediately preceding Additional
Fixed Amount Payment Date. [0148] 5. Principal Loss: [0149]
Incurred Principal Loss With respect to a Floating Rate Payer
Payment Date, an amount Amount: equal to the lesser of: [0150] (i)
(a) the Periodic Principal Loss Amount, minus [0151] (b) the
Periodical Principal Reimbursement Amount, subject to a minimum of
zero; [0152] (ii) (a) the Aggregate Principal Loss Amount, minus
[0153] (b) the Loss Threshold, subject to a minimum of zero; and,
[0154] (iii) the Outstanding Tranche Notional Amount as of the
immediately preceding Fixed Rate Payer Payment Date. [0155]
Principal Loss Amount: With respect to a Reference Obligation a
Writedown Amount or a Principal Shortfall Amount in respect of such
Reference Obligation determined on or prior to the fifth Business
Day following the Effective Maturity Date of such Reference
Obligation. [0156] Periodic Principal Loss With respect to a
Floating Rate Payer Payment Date, an amount Amount: equal to the
sum of the Principal Loss Amount(s) in respect of each Writedown
(if any) and each Failure to Pay Principal (if any) for each
Reference Obligation hereof specified in a Floating Amount Event
Notice delivered in respect of such Floating Rate Payer Payment
Date. [0157] Aggregate Principal Loss As of the relevant date of
determination, an amount equal to: Amount: (i) the sum of the
Principal Loss Amount(s) in respect of each Writedown (if any) and
each Failure to Pay Principal (if any) for each Reference
Obligation hereof occurring prior to such date (if any); minus,
(ii) the sum of the Principal Reimbursement Amount(s) in respect of
each Writedown Reimbursement (if any) and each Principal Shortfall
Reimbursement (if any) for each Reference Obligation hereof
occurring prior to such date; [0158] provided, if such amount is
less than zero, the Aggregate Principal Loss Amount shall be zero.
[0159] Incurred Principal With respect to an Additional Fixed
Amount Payment Date, an [0160] Reimbursement Amount: amount equal
to the lesser of: [0161] (i) an amount, subject to a minimum of
zero, equal to: [0162] (a) the Periodic Principal Reimbursement
Amount, [0163] minus, [0164] (b) the Periodical Principal Loss
Amount, minus, [0165] (c) the greater of (1) the Aggregate
Principal Loss Amount as of the immediately preceding Fixed Rate
Payer Calculation Period, minus, the Loss Cap, and (2) zero; and,
[0166] (ii) an amount subject to a minimum of zero, equal to:
[0167] (a) the sum of the Incurred Principal Loss Amounts
determined on or prior to such Additional Fixed Amount Payment Date
(if any); minus, [0168] (b) the sum of the Incurred Principal
[0169] Reimbursement Amounts (if any) determined on or prior to the
immediately preceding Additional Fixed Amount Payment Date. [0170]
Principal Reimbursement With respect to a Reference Obligation, a
Writedown Amount: Reimbursement Amount or a Principal Shortfall
Reimbursement Amount in respect of such Reference Obligation
determined on or prior to the fifth Business Day following the day
that is one calendar year after the Effective Maturity Date of such
Reference Obligation. [0171] Periodic Principal Payment With
respect to an Additional Fixed Amount Payment Date, an [0172]
Reimbursement Amount: amount equal to the sum of the Principal
Reimbursement Amount(s) in respect of each Writedown Reimbursement
(if any) and each Principal Shortfall Reimbursement (if any) for
each Reference Obligation hereof specified in an Additional Fixed
Amount Event Notice delivered in respect of such Additional Fixed
Amount Payment Date (if any).
[0173] 6. Interest Shortfall Actual Interest Amount: With respect
to any Reference Obligation Payment Date in respect of a Reference
Obligation, payment by or on behalf of the Issuer of an amount in
respect of interest due under such Reference Obligation (including,
without limitation, any deferred interest or defaulted interest but
excluding payments in respect of prepayment penalties, yield
maintenance provisions or principal, except that the Actual
Interest Amount shall include any payment of principal representing
capitalized interest) to the holder(s) of such Reference Obligation
in respect of such Reference Obligation.
[0174] Expected Interest Amount: With respect to any Reference
Obligation Payment Date in respect of a Reference Obligation, the
amount of current interest that would accrue during the related
Reference Obligation Calculation Period calculated using the
Reference Obligation Coupon on a principal balance of such
Reference Obligation equal to (a) the Outstanding Principal Amount
taking into account any reductions due to a principal deficiency
balance or realized loss amount (however described in the
Underlying Instruments) that are attributable to such Reference
Obligation minus (b) the Aggregate Implied Writedown Amount (if
any) for such Reference Obligation and that will be payable on the
related Reference Obligation Payment Date assuming for this purpose
that sufficient funds are available therefor in accordance with the
Underlying Instruments.
[0175] Except as provided in (a) in the previous sentence, the
Expected Interest Amount in respect of a Reference Obligation shall
be determined without regard to (i) unpaid amounts in respect of
accrued interest on prior Reference Obligation Payment Dates or
(ii) any prepayment penalties or yield maintenance provisions.
[0176] The Expected Interest Amount shall be determined without
regard to the effect of any provisions (however described) of the
Underlying Instruments that otherwise permit the limitation of due
payments to distributions of funds from proceeds of the Underlying
Assets, or that provide for the capitalization or deferral of
interest on such Reference Obligation, or that provide for the
extinguishing or reduction of such payments or distributions (but,
for the avoidance of doubt, taking account of any Writedown within
paragraph (i) of the definition of "Writedown" occurring in
accordance with the relevant Underlying Instruments).
[0177] Interest Shortfall With respect to any Reference Obligation
Payment Date in respect of a Reference Obligation, either (i) the
nonpayment of an Expected Interest Amount or (ii) the payment of an
Actual Interest Amount that is less than the Expected Interest
Amount.
[0178] For the avoidance of doubt, the occurrence of an event
within (i) or (ii) shall be determined taking into account any
payment made under the relevant Reference Policy, if
applicable.
[0179] Unadjusted Interest With respect to any Reference Obligation
Payment Date in respect
[0180] Shortfall Amount: of a Reference Obligation, an amount equal
to the greater of:
[0181] (a) zero; and
[0182] (b) the amount equal to the product of:
[0183] (i) (A) the Expected Interest Amount; minus
[0184] (B) the Actual Interest Amount; and
[0185] (ii) the Applicable Percentage;
[0186] provided that, with respect to the first Reference
Obligation Payment Date in respect of such Reference Obligation,
the Interest Shortfall Amount shall be the amount determined in
accordance with (a) and (b) above multiplied by a fraction equal
to:
[0187] (i) the number of days in the initial Fixed Rate Payer
Calculation Period; over (ii) the number of days in the first
Reference Obligation Calculation Period with respect to such
Reference Obligation.
[0188] Interest Shortfall Amount: With respect to any Reference
Obligation Payment Date for a Reference Obligation on or prior to
the fifth Business Day following the Effective Maturity Date of
such Reference Obligation, in respect of a Reference Obligation, an
amount equal to the lesser of the related Unadjusted Interest
Shortfall Amount and the related Reference Obligation Interest
Shortfall Cap Amount.
[0189] Interest Shortfall With respect to any Reference Obligation
Payment Date for a Reimbursement: Reference Obligation on or prior
to the fifth Business Day following the day that is one calendar
year after the Effective Maturity Date of such Reference
Obligation, the payment by or on behalf of the Issuer of an Actual
Interest Amount in respect of such Reference Obligation that is
greater than the Expected Interest Amount.
[0190] Unadjusted Interest With respect to any Reference Obligation
Payment Date in respect Shortfall Reimbursement of a Reference
Obligation, the product of (a) the amount of any
Amount: Interest Shortfall Reimbursement on such day and (b) the
Applicable Percentage.
[0191] Interest Shortfall As set forth in the Annex D attached
hereto.
[0192] Reimbursement Amount:
Incurred Interest
[0193] Shortfalls:
[0194] Incurred Interest Shortfall With respect to each Fixed Rate
Payer Calculation Period, an
[0195] Amount: amount equal to the lesser of:
[0196] (i) an amount, subject to a minimum of zero, equal to
[0197] (a) the relevant Periodic Interest Shortfall Amount;
minus,
[0198] (b) the relevant Periodic Interest Shortfall Reimbursement
Amount; minus,
[0199] (c) relevant Interest Shortfall Threshold; and,
[0200] (ii) the relevant Interest Shortfall Cap.
[0201] Periodic Interest Shortfall With respect to each Fixed Rate
Payer Calculation Period, an Amount: amount equal to the sum of the
Interest Shortfall Amount(s) in respect of each Interest Shortfall
(if any) and Reference Obligation hereof occurring within such
Fixed Rate Payer Calculation Period. Cumulative Incurred With
respect to each Fixed Rate Payer Calculation Period, an
[0202] Interest Shortfall Amount: amount equal to:
[0203] (i) the relevant Incurred Interest Shortfall Amount;
minus,
[0204] (ii) the relevant Incurred Interest Shortfall Reimbursement
Amount; plus,
[0205] (iii) the product of:
[0206] (a) the Cumulative Incurred Interest Shortfall Amount as of
the immediately preceding Fixed Rate Payer Period End Date;
and,
[0207] (b) the relevant Interest Shortfall Compounding Factor.
[0208] Interest Shortfall With respect to each Fixed Rate Payer
Calculation Period, an
[0209] Compounding Factor: percentage equal to the sum of (i)
100.00%; and,
[0210] (ii) the product of (a) the sum of the Fixed Rate and the
Relevant Rate, and (b) the Fixed Rate Day Count Fraction in respect
of such Fixed Rate Payer Calculation Period.
[0211] Relevant Rate With respect to a Fixed Rate Payer Calculation
Period, the Floating Rate, expressed as a decimal number with seven
decimal places, that would be determined if:
[0212] (a) the 2000 ISDA Definitions (and not the 2003 ISDA Credit
Derivatives Definitions) applied to this paragraph;
[0213] (b) the Fixed Rate Payer Calculation Period were a
"Calculation Period" for purposes of such determination; and
[0214] (c) the following terms applied:
[0215] (i) the Floating Rate Option were USD-LIBOR-BBA;
[0216] (ii) the Designated Maturity were the period that
corresponds to the usual length of a Fixed Rate Payer Calculation
Period; and
[0217] (iii) the Reset Date were the first day of the Calculation
Period; Interest Shortfall As set forth in the Annex C attached
hereto.
Threshold:
[0218] Interest Shortfall Cap: With respect to each Fixed Rate
Payer Calculation Period, an amount equal to the Fixed Amount for
such Fixed Rate Payer Calculation Period.
[0219] Incurred Interest Shortfall Reimbursements:
[0220] Incurred Interest Shortfall With respect to each Fixed Rate
Payer Calculation Period, an
[0221] Reimbursement Amount: amount equal to the lesser of:
[0222] (i) an amount, subject to a minimum of zero, equal to:
[0223] (a) the relevant Incurred Interest Shortfall Reimbursement
Amount; minus,
[0224] (b) the relevant Incurred Interest Shortfall Amount;
minus,
[0225] (c) the relevant Cumulative Excess Interest Shortfall
Amount; and,
[0226] (ii) the product of:
[0227] (a) the Cumulative Incurred Interest Shortfall Amount as of
the immediately preceding Fixed Rate Payer Period End Date;
and,
[0228] (b) the relevant Interest Shortfall Compounding Factor.
[0229] Periodic Interest Shortfall With respect to each Fixed Rate
Payer Calculation Period, an
[0230] Reimbursement Amount: amount equal to the sum of the
Interest Shortfall Reimbursement Amount(s) in respect of each
Interest Shortfall Reimbursement (if any) and Reference Obligation
hereof occurring within such Fixed Rate Payer Calculation
Period.
[0231] Cumulative Excess Interest As set forth in the Annex C.
[0232] Shortfall Amount:
[0233] I. Additional Provisions:
[0234] (a) Delivery of Servicer Report
[0235] If either party makes a request in writing, the Calculation
Agent agrees to provide such party with a copy of the most recent
Servicer Report promptly following receipt of such request, if and
to the extent such Servicer Report is reasonably available to the
Calculation Agent (whether or not the Calculation Agent is a holder
of the Reference Obligation). In addition, if a Floating Payment or
an Additional Fixed Payment is due hereunder, then the Calculation
Agent or the party that notifies the other party that the relevant
Floating Payment or Additional Fixed Payment is due, as applicable,
(the "Notifying Party") shall deliver a copy of any Servicer Report
relevant to such payment that is requested by the party that is not
the Notifying Party or by either party where the Notifying Party is
the Calculation Agent, if and to the extent that such Servicer
Report is reasonably available to the Notifying Party (whether or
not the Notifying Party is a holder of the Reference Obligation).]
(b) Calculation Agent and Buyer and Seller Determinations The
Calculation Agent shall be responsible for determining and
calculating, for each Reference Obligation, (i) the Fixed Amount
payable on each Fixed Rate Payer Payment Date; (ii) the occurrence
of a Floating Amount Event, (iii) the occurrence of an Additional
Fixed Payment Event, (iv) the Floating Amount(s) (if any) and all
amounts relating thereto and (v) the Additional Fixed Amount(s) (if
any) and all amounts relating thereto[; provided that
notwithstanding the above, each of Buyer and Seller shall be
entitled to determine and calculate the above amounts to the extent
that Buyer or Seller, as applicable, has the right to deliver a
notice to the other party demanding payment of such amount.] The
Calculation Agent or Buyer or Seller, as applicable, shall make
such determinations and calculations solely on the basis of the
Servicer Reports to the extent such Servicer Reports are reasonably
available to the Calculation Agent or such party. The Calculation
Agent or Buyer or Seller, as applicable, shall, as soon as
practicable after making any of the determinations or calculations
specified in (ii) through (v) above, notify the parties or the
other party, as applicable, of such determinations and
calculations.
[0236] (c) Adjustment of Calculation Agent Determinations
[0237] To the extent that a Servicer furnishes any Servicer Reports
correcting information contained in previously issued Servicer
Reports, and such corrections impact calculations or determinations
made hereunder, such calculations or determinations shall be
adjusted retroactively by the Calculation Agent to reflect the
corrected information (provided that, for the avoidance of doubt,
no amounts in respect of interest shall be payable by either party
and provided that the Calculation Agent in performing the
calculations or determinations pursuant to this paragraph will
assume that no interest has accrued on any adjusted amount), and
the Calculation Agent shall promptly notify both parties of any
corrected payments required by either party. Any required corrected
payments shall be made on the second Fixed Rate Payer Payment Date
following the day on which such notification by the Calculation
Agent is effective.
[(d) Disclaimers
[0238] Without limitation of Section 9.1(b)(iv) of the Credit
Derivatives Definitions (as modified above), each party
acknowledges that the other party or its Affiliates or the
Calculation Agent may act from time to time as an originator,
sponsor, servicer, administrator, trustee, underwriter or market
maker, or otherwise act in a capacity as a result of which such
party or its Affiliates may be in possession of information in
relation to one or more Reference Obligations or Reference Entities
contained in Annex A and that may or may not be publicly available
or known to the other party. No furnishing by a party or its
Affiliates or the Calculation Agent of any notice, report, or other
information with respect to any Reference Obligation or any
Reference Entity ("Reference Obligation Information") shall
prejudice the foregoing provision or Section 9.1 (b)(iv) of the
Credit Derivatives Definitions, constitute a representation or
warranty as to the correctness or completeness of such Reference
Obligation Information, give rise to any duty to supplement, update
or revise the Reference Obligation Information so provided, or
otherwise result in such party or the Calculation Agent having any
responsibility for the content of such Reference Obligation
Information.]
[0239] 2. Additional Definitions and Amendments to the Credit
Derivatives Definitions
[0240] (a) References in Section 9.1(a) of the Credit Derivatives
Definitions as well as Section 3(a)(iv) of the form of Novation
Agreement set forth in Exhibit E to the Credit Derivatives
Definitions to the Reference Entity shall be deemed to be
references to each Reference Entity and the Insurer in respect of
the relevant Reference Policy, if applicable.
[0241] (b) the following terms have the meanings given below:
"Actual Principal Amount" means, with respect to a Reference
Obligation and the Final Amortization Date or the Legal Final
Maturity Date, an amount paid on such day by or on behalf of the
relevant Issuer in respect of principal (excluding any capitalized
interest) to the holder(s) of such Reference Obligation in respect
of such Reference Obligation.
[0242] "Aggregate Implied Writedown Amount" means, with respect to
a Reference Obligation, the greater of (i) zero and (ii) the
aggregate of all Implied Writedown Amounts minus the aggregate of
all Implied Writedown Reimbursement Amounts.
[0243] "Current Period Implied Writedown Amount" means, with
respect to a Reference Obligation in respect of a Reference
Obligation Calculation Period, an amount determined as of the last
day of such Reference Obligation Calculation Period equal to the
greater of:
[0244] (i) zero; and
[0245] (ii) the product of:
[0246] (A) the Implied Writedown Percentage; and
[0247] (B) the greater of:
[0248] (1) zero; and
[0249] (2) the lesser of (x) the Pari Passu Amount and (y) the Pari
Passu Amount plus the Senior Amount minus the aggregate outstanding
asset pool balance backing the payment obligations on such
Reference Obligation (all such outstanding asset pool balances as
obtained by the Calculation Agent from the most recent Servicer
Report for such Reference Obligation available as of such day),
calculated based on the face amount of the assets then in such
pool, whether or not any such asset is performing.
[0250] "Effective Maturity Date" means, with respect to a Reference
Obligation, the earlier of (a) the Legal Final Maturity Date and
(b) the Final Amortization Date.
[0251] "Expected Principal Amount" means, with respect to a
Reference Obligation and the Final Amortization Date or the Legal
Final Maturity Date, an amount equal to (i) the Outstanding
Principal Amount of such Reference Obligation payable on such day
(excluding capitalized interest) assuming for this purpose that
sufficient funds are available for such payment, where such amount
shall be determined in accordance with the Underlying Instruments,
minus (ii) the sum of (A) the Aggregate Implied Writedown Amount
(if any) and (B) the net aggregate principal deficiency balance or
realized loss amounts (however described in the Underlying
Instruments) that are attributable to such Reference Obligation.
The Expected Principal Amount shall be determined without regard to
the effect of any provisions (however described) of the Underlying
Instruments that permit the limitation of due payments or
distributions of funds in accordance with the tenns of such
Reference Obligation or that provide for the extinguishing or
reduction of such payments or distributions.
[0252] "Failure to Pay Principal" means, with respect to a
Reference Obligation, (i) a failure by the relevant Reference
Entity (or any Insurer thereof) to pay an Expected Principal Amount
on the Final Amortization Date or the Legal Final Maturity Date, as
the case may be or (ii) payment on any such day of an Actual
Principal Amount that is less than the Expected Principal Amount;
provided that the failure by such Reference Entity (or any Insurer
thereof) to pay any such amount in respect of principal in
accordance with the foregoing shall not constitute a Failure to Pay
Principal if such failure has been remedied within any grace period
applicable to such payment obligation under the Underlying
Instruments or, if no such grace period is applicable, within three
Business Days after the day on which the Expected Principal Amount
was scheduled to be paid.
[0253] "Final Amortization Date" means, with respect to a Reference
Obligation, the first to occur of (i) the date on which the
Reference Obligation Notional Amount is reduced to zero and (ii)
the date on which the assets backing the Reference Obligation or
designated to fund amounts due in respect of the Reference
Obligation are liquidated, distributed or otherwise disposed of in
full and the proceeds thereof are distributed or otherwise disposed
of in full.
[0254] "Implied Writedown Amount" means, with respect to a
Reference Obligation, (i) if the Underlying Instruments do not
provide for writedowns, applied losses, principal deficiencies or
realized losses as described in (i) of the definition of
"Writedown" to occur in respect of the Reference Obligation, on any
Reference Obligation Payment Date, an amount determined by the
Calculation Agent equal to the excess, if any, of the Current
Period Implied Writedown Amount over the Previous Period Implied
Writedown Amount, in each case in respect of the Reference
Obligation Calculation Period to which such Reference Obligation
Payment Date relates, and (ii) in any other case, zero.
[0255] "Implied Writedown Percentage" means, with respect to a
Reference Obligation, (i) the Outstanding Principal Amount divided
by (ii) the Pari Passu Amount.
[0256] "Implied Writedown Reimbursement Amount" means, with respect
to a Reference Obligation, (i) if the Underlying Instruments do not
provide for writedowns, applied losses, principal deficiencies or
realized losses as described in (i) of the definition of
"Writedown" to occur in respect of the Reference Obligation, on any
Reference Obligation Payment Date, an amount determined by the
Calculation Agent equal to the excess, if any, of the Previous
Period Implied Writedown Amount for the Reference Obligation over
the Current Period Implied Writedown Amount for the Reference
Obligation, in each case in respect of the Reference Obligation
Calculation Period to which such Reference Obligation Payment Date
relates, and (ii) in any other case, zero; provided that the
aggregate of all Implied Writedown Reimbursement Amounts for a
Reference Obligation at any time shall not exceed the product of
the Pari Passu Amount for the Reference Obligation and the Implied
Writedown Percentage for the Reference Obligation, "Insurer" means,
with respect to a Reference Obligation, the insurer of such
Reference Obligation specified in Annex A.
[0257] "Issuer" means, with respect to a Reference Obligation, the
issuer of such Reference Obligation specified in Annex A.
[0258] "Legal Final Maturity Date" means, with respect to a
Reference Obligation, the date set out in the Annex A for such
Reference Obligation (subject, for the avoidance of doubt, to any
business day convention applicable to the legal final maturity date
of such Reference Obligation), provided that if the legal final
maturity date of such Reference Obligation is amended, the Legal
Final Maturity Date shall be such date as amended.
[0259] "Original Principal Amount" means, with respect to a
Reference Obligation, the amount specified as such in Annex A.
[0260] "Outstanding Principal Amount" means, with respect to a
Reference Obligation as of any date of determination, the
outstanding principal balance of such Reference Obligation as of
such date, which shall take into account:
[0261] (i) all payments of principal;
[0262] (ii) all writedowns or applied losses (however described in
the Underlying Instruments) resulting in a reduction in the
outstanding principal balance of such Reference Obligation
[0263] (other than as a result of a scheduled or unscheduled
payment of principal);
[0264] (iii) forgiveness of any amount by the holders of such
Reference Obligation pursuant to an amendment to the Underlying
Instruments resulting in a reduction in the outstanding principal
balance of such Reference Obligation; (iv) any payments reducing
the amount of any reductions described in (ii) and (iii) of this
definition; and
[0265] (v) any increase in the outstanding principal balance of
such Reference Obligation that reflects a reversal of any prior
reductions described in (ii) and (iii) of this definition).
[0266] "Pari Passu Amount" means, with respect to a Reference
Obligation as of any date of determination, the aggregate of the
Outstanding Principal Amount of the Reference Obligation and the
aggregate outstanding principal balance of all obligations of the
relevant Reference Entity backed by the relevant Underlying Assets
and ranking pari passu in priority with such Reference
Obligation.
[0267] "Previous Period Implied Writedown Amount" means, with
respect to a Reference Obligation in respect of a Reference
Obligation Calculation Period, the Current Period Implied Writedown
Amount as determined in relation to the last day of the immediately
preceding Reference Obligation Calculation Period for such
Reference Obligation.
[0268] "Principal Payment" means, with respect to a Reference
Obligation and any Reference Obligation Payment Date, the
occurrence of a payment of an amount to the holders of such
Reference Obligation in respect of principal (scheduled or
unscheduled) in respect of such Reference Obligation including any
amount determined under sub-clause (i) of Writedown Reimbursement,
but excluding payments in respect of principal representing
capitalized interest, and any amount determined under sub-clause
(ii) or (iii) of Writedown Reimbursement or Interest Shortfall
Reimbursement.
[0269] "Principal Payment Amount" means, with respect to any
Reference Obligation Payment Date for a Reference Obligation, an
amount equal to the product of (i) the amount of any Principal
Payment on such date and (ii) the Applicable Percentage.
[0270] "Principal Shortfall Amount" means, with respect to a
Reference Obligation, in respect of a Failure to Pay Principal, an
amount equal to the greater of:
[0271] (i) zero; and
[0272] (ii) the amount equal to the product of:
[0273] (A) the Expected Principal Amount minus the relevant Actual
Principal Amount; and
[0274] (B) the Applicable Percentage;
[0275] If the Principal Shortfall Amount in respect of a Reference
Obligation would be greater than the Reference Obligation Notional
Amount immediately prior to the occurrence of such Failure to Pay
Principal, then such Principal Shortfall Amount shall be deemed to
be equal to the Reference Obligation Notional Amount at such
time.
[0276] "Principal Shortfall Reimbursement" means, with respect to a
Reference Obligation on any day on or prior to the fifth Business
Day following the day that is one calendar year after the Effective
Maturity Date of such Reference Obligation, the payment by or on
behalf of the relevant Issuer of an amount in respect of such
Reference Obligation in or toward the satisfaction of any deferral
of or failure to pay principal arising from one or more prior
occurrences of a Failure to Pay Principal.
[0277] "Principal Shortfall Reimbursement Amount" means, with
respect to a Reference Obligation on any day, the product of (i)
the amount of any relevant Principal Shortfall Reimbursement on
such day and (ii) the relevant Applicable Percentage.
[0278] "Principal Shortfall Reimbursement Payment Amount" means,
with respect to a Reference Obligation and an Additional Fixed
Amount Payment Date, the sum of the Principal Shortfall
Reimbursement Amounts in respect of all Principal Shortfall
Reimbursements (if any) made during the Reference Obligation
Calculation Period relating to such Additional Fixed Amount Payment
Date (or, in the case of an Additional Fixed Amount Payment Date
after the final Fixed Rate Payer Payment Date, made on the related
Reference Obligation Payment Date), provided that the aggregate of
all such Principal Shortfall Reimbursement Payment Amounts at any
time shall not exceed the aggregate of all Floating Amounts
(determined without regard to the Effective Date) in respect of
occurrences of Failure to Pay Principal prior to such Additional
Fixed Amount Payment Date.
[0279] "Reference Obligation Calculation Period" means, with
respect to a Reference Obligation and each Reference Obligation
Payment Date, a period corresponding to the interest accrual period
relating to such Reference Obligation Payment Date pursuant to the
relevant Underlying Instruments.
[0280] "Reference Obligation Coupon" means, with respect to a
Reference Obligation, the periodic interest rate applied in
relation to each related Reference Obligation Calculation Period on
the related Reference Obligation Payment Date, as determined in
accordance with the terms of the relevant Underlying Instruments as
at the Effective Date, without regard to any subsequent
amendment.
[0281] "Reference Obligation Payment Date" means, with respect to a
Reference Obligation, (i) each scheduled distribution date for such
Reference Obligation occurring on or after the Effective Date and
on or prior to the relevant Legal Final Maturity Date, determined
in accordance with the Underlying Instruments and (ii) any day
after the Effective Maturity Date on or prior to the fifth Business
Day following the day that is one calendar year after the Effective
Maturity Date of such Reference Obligation on which a payment is
made in respect of such Reference Obligation.
[0282] "Reference Policy" means, with respect to a Reference
Obligation, the reference policy for such Reference Obligation
specified in Annex A.
[0283] "Senior Amount" means, with respect to a Reference
Obligation as of any day, the aggregate outstanding principal
balance of all obligations of the Reference Entity backed by the
Underlying Assets and ranking senior in priority to such Reference
Obligation.
[0284] "Servicer" means, with respect to a Reference Obligation,
any trustee, servicer, sub-servicer, master servicer, fiscal agent,
paying agent or other similar entity responsible for calculating
payment amounts or providing reports pursuant to the Underlying
Instruments.
[0285] "Servicer Reports" means, with respect to a Reference
Obligation, periodic statements or reports regarding the Reference
Obligation provided by the Servicer to holders of the Reference
Obligation.
[0286] "Underlying Assets" means, with respect to a Reference
Obligation, the assets backing the Reference Obligation for the
benefit of the holders of such Reference Obligation and which are
expected to generate the cashflows required for the servicing and
repayment (in whole or in part) of such Reference Obligation, or
the assets to which a holder of such Reference Obligation is
economically exposed where such exposure is created
synthetically.
[0287] "Underlying Instruments" means, with respect to a Reference
Obligation, the indenture, trust agreement, pooling and servicing
agreement or other relevant agreement(s) setting forth the terms of
the Reference Obligation.
[0288] "Writedown" means, with respect to a Reference Obligation,
the occurrence at any time on or after the Effective Date of:
[0289] (i) (A) a writedown or applied loss (however described in
the Underlying Instruments) resulting in a reduction in the
Outstanding Principal Amount of such Reference Obligation (other
than as a result of a scheduled or unscheduled payment of
principal); or
[0290] (B) the attribution of a principal deficiency or realized
loss (however described in the Underlying Instruments) to such
Reference Obligation resulting in a reduction or subordination of
the current interest payable on such Reference Obligation;
[0291] (ii) the forgiveness of any amount of principal by the
holders of such Reference Obligation pursuant to an amendment to
the Underlying Instruments resulting in a reduction in the
Outstanding Principal Amount; or
[0292] (iii) if the Underlying Instruments do not provide for
writedowns, applied losses, principal deficiencies or realized
losses as described in (i) above to occur in respect of such
Reference Obligation, an Implied Writedown Amount being determined
in respect of such Reference Obligation by the Calculation
Agent.
[0293] "Writedown Amount" means, with respect to a Reference
Obligation on any day, the product of (i) the amount of any
Writedown with respect to such Reference Obligation on such day and
(ii) the Applicable Percentage.
[0294] "Writedown Reimbursement" means, with respect to a Reference
Obligation on any day on or prior to the fifth Business Day
following the day that is one calendar year after the Effective
Maturity Date of such Reference Obligation, the occurrence of:
[0295] (i) a payment by or on behalf of the Issuer of an amount in
respect of such Reference Obligation in reduction of any prior
Writedowns;
[0296] (ii) (A) an increase by or on behalf of the Issuer of the
Outstanding Principal Amount of such Reference Obligation to
reflect the reversal of any prior Writedowns; or
[0297] (B) a decrease in the principal deficiency balance or
realized loss amounts (however described in the Underlying
Instruments) attributable to such Reference Obligation; or (iii) if
the Underlying Instruments do not provide for writedowns, applied
losses, principal deficiencies or realized losses as described in
(ii) above to occur in respect of such Reference Obligation, an
Implied Writedown Reimbursement Amount being determined in respect
of such Reference Obligation by the Calculation Agent.
[0298] "Writedown Reimbursement Amount" means, with respect to a
Reference Obligation on any day, an amount equal to the product
of.
[0299] (i) the sum of all Writedown Reimbursements with respect to
such Reference Obligation on that day; and
[0300] (ii) the Applicable Percentage;
[0301] "Writedown Reimbursement Payment Amount" means, with respect
to a Reference Obligation and an Additional Fixed Amount Payment
Date, the sum of the Writedown Reimbursement Amounts in respect of
all Writedown Reimbursements (if any) during the Reference
Obligation Calculation Period relating to such Additional Fixed
Amount Payment Date (or, in the case of an Additional Fixed Amount
Payment Date after the final Fixed Rate Payer Payment Date, on the
related Reference Obligation Payment Date or date of determination
of an Implied Writedown Reimbursement Amount, as the case may be),
provided that the aggregate of all such Writedown Reimbursement
Payment Amounts at any time shall not exceed the aggregate of all
Floating Amounts with respect to such Reference Obligation
(determined without regard to the Effective Date) in respect of
Writedowns occurring prior to such Additional Fixed Amount Payment
Date.
TABLE-US-00005 Annex A: Reference Portfolio Legal Original ISIN/
final Principal Reference [Reference Bloomberg CUS maturity Amount
Initial Entity [Issuer:]: [Insurer:] Policy:] ID: IP date (USD)
Factor Coupon
TABLE-US-00006 Annex B: Reference Tranche Matrix [Reference Tranche
[Reference Spread] [Lower Strike] [Upper Strike] 1 S.sub.1 = [ ] %
0.00% X.sub.1 2 S.sub.2 = [ ] % X.sub.1 = [ ] % X.sub.2 3 S.sub.3 =
[ ] % X.sub.2 = [ ] % X.sub.3 4 S.sub.4 = [ ] % X.sub.3 = [ ] %
X.sub.4 5 S.sub.5 = [ ] % X.sub.4 = [ ] % 100.00%
Portfolio Reference Spread: [ ]%
[0302] Annex C: Interest Shortfall Annex
[0303] Aggregate Loss A percentage, as of the relevant date of
determination equal to the Percentage: quotient of (i) Aggregate
Principal Loss Amount, and (ii) the Initial Portfolio Size.
[0304] Outstanding Portfolio A percentage, as of the relevant date
of determination equal to the Percentage: sum of (i) the
Outstanding Portfolio Size divided by the Initial Portfolio Size,
and (ii) the Aggregate Loss Percentage.
[0305] Reference Tranche The matrix attached hereto as Annex B
Matrix:
[0306] Reference Tranche Each tranche specified in the Reference
Tranche Matrix.
[0307] Lower Strike With respect to a Reference Tranche, the
percentage listed as such opposite the relevant Reference Tranche
in the Reference Tranche Matrix.
[0308] Upper Strike With respect to a Reference Tranche, the
percentage listed as such opposite the relevant Reference Tranche
in the Reference Tranche Matrix.
[0309] Reference Spread With respect to a Reference Tranche, the
rate listed as such opposite the relevant Reference Tranche in the
Reference Tranche Matrix.
[0310] Outstanding Tranche With respect to a Reference Tranche, a
percentage as of the relevant Width: date of determination equal
to:
[0311] (i) the lesser of (a) the Outstanding Portfolio Percentage
and (b) the relevant Upper Strike; minus,
[0312] (i) the greater of (a) the Aggregate Loss Percentage and (b)
the relevant Lower Strike.
[0313] Subordinate Reference With respect to a Reference Tranche,
every other Reference Tranche Tranche: with a lesser Lower Strike
than such Reference Tranche. Senior Reference With respect to a
Reference Tranche, every other Reference Tranche Tranche: with a
greater Lower Strike than such Reference Tranche. Reference Tranche
Fixed With respect to a Reference Tranche and a Fixed Rate
Payer
Amount: Calculation Period with respect to the Transaction:
[0314] For each Reference Tranche with a Lower Strike equal to
zero, an amount, subject to a minimum of zero, equal to:
[0315] (i) the Aggregate Asset Premium; minus
[0316] (ii) the sum of the Reference Tranche Fixed Amount of
each
[0317] Senior Reference Tranche
[0318] For each Reference Tranche with a Lower Strike not equal to
zero, an amount equal to the lesser of:
[0319] (i) the product of:
[0320] (a) the relevant Reference Spread;
[0321] (b) a percentage equal to:
[0322] (1) the sum of the relevant Outstanding Tranche Width as of
5:00 p.m in the Calculation Agent City on each day in the related
Fixed Rate Payer Calculation Period;
[0323] divided by,
[0324] (2) the actual number of days in the related Fixed Rate
Payer Calculation Period; and,
[0325] (c) the Initial Portfolio Size;
[0326] (d) the Fixed Rate Day Count Fraction; and
[0327] (ii) an amount, subject to a minimum of zero, equal to:
[0328] (a) the Aggregate Asset Premium; minus
[0329] (b) the sum of the Reference Tranche Fixed Amount of each
Senior Reference Tranche.
[0330] Interest Shortfall With respect to a Fixed Rate Payer
Calculation Period, an amount
[0331] Threshold: equal to the sum the Reference Tranche Fixed
Amount(s) for each Reference Transaction with an Upper Strike that
is less than or equal to the Attachment Point.
[0332] Reference Tranche With respect to a Reference Tranche and a
Fixed Rate Payer Incurred Interest Shortfall Calculation Period, an
amount equal to the lesser of: Amount: (i) the relevant Reference
Tranche Fixed Amount; and,
[0333] (ii) an amount, subject to a minimum of zero, equal to:
[0334] (a) the relevant Periodic Interest Shortfall Amount;
minus,
[0335] (b) the relevant Periodic Interest Shortfall Reimbursement
Amount; minus,
[0336] (c) the sum of the Reference Tranche Fixed Amount(s) in
respect of each Subordinate Reference Tranche (if any).
[0337] Reference Tranche With respect to a Reference Tranche and a
Fixed Rate Payer Incurred Interest Shortfall Calculation Period, an
amount equal to the lesser:
[0338] Reimbursement Amount: (i) the product of:
[0339] (a) relevant Reference Tranche Cumulative Incurred Interest
Shortfall Amount as of the immediately preceding Fixed Rate Payer
Period End Date; and,
[0340] (b) the relevant Reference Tranche Interest Shortfall
Compounding Factor; and,
[0341] (ii) an amount, subject to a minimum of zero, equal to:
[0342] a) the relevant Periodic Interest Shortfall Reimbursement
Amount; minus,
[0343] (b) the relevant Periodic Interest Shortfall Amount;
minus,
[0344] (c) the sum of the product(s) of:
[0345] (1) Reference Tranche Cumulative Incurred Interest Shortfall
Amount as of the immediately preceding Fixed Rate Payer Period End
Date in respect of each Senior Reference Tranche (if any); and,
[0346] (2) Reference Tranche Interest Shortfall Compounding Factor
in respect of the relevant Senior Reference Tranche (if any).
[0347] Reference Tranche With respect to a Reference Tranche and a
Fixed Rate Payer Interest Shortfall Calculation Period, an
percentage equal to the product of:
[0348] Compounding Factor: (i) 100.00%; and,
[0349] (ii) the product of (a) the sum of the relevant Reference
Spread and the Relevant Rate, and (b) the Fixed Rate Day Count
Fraction in respect of such Fixed Rate Payer Calculation Period.
Reference Tranche With respect to a Reference Tranche and a Fixed
Rate Payer Cumulative Incurred Calculation Period, an amount equal
to: Interest Shortfall (i) the relevant Reference Tranche Incurred
Interest Shortfall
[0350] Amount: Amount; minus,
[0351] (ii) the relevant Reference Tranche Incurred Interest
Shortfall Reimbursement Amount; plus,
[0352] (iii) the product of:
[0353] (a) the Reference Tranche Cumulative Incurred Interest
Shortfall Amount as of the immediately preceding Fixed Rate Payer
Period End Date; and,
[0354] (b) the relevant Reference Tranche Interest Shortfall
Compounding Factor.
[0355] Cumulative Excess With respect to a Fixed Rate Payer
Calculation Period, an amount
[0356] Interest Shortfall Amount equal to the sum of the Reference
Tranche Cumulative Incurred Interest Shortfall Amount(s) for each
Reference Transaction with an Lower Strike that is greater than or
equal to the Detachment Point.
[0357] Annex D: Reference Obligation Interest Shortfall Cap Annex
Reference Obligation With respect to each Reference Obligation, as
of the date of Interest Shortfall Cap determination, an amount
equal to the product of: Amount: (i) the Portfolio Reference Spread
specified in the Reference Tranche Matrix;
[0358] (ii) the relevant Reference Obligation Notional Amount
outstanding on the last day of the related Reference Obligation
Calculation Period immediately prior to the related Reference
Obligation Payment Date on which the relevant Interest Shortfall
occurred, as adjusted for any increases or decreases of such
Reference Obligation Notional Amount; and,
[0359] (ii) the actual number of days in the related Reference
Obligation Calculation Period immediately prior to the Reference
Obligation Payment Date on which the relevant Interest Shortfall
occurred divided by 360.
[0360] Interest Shortfall With respect to each Reference
Obligation, zero for the first Additional Reimbursement Fixed
Amount Payment Date; with respect to any subsequent
Amount: Additional Fixed Amount Payment Date and calculated as of
the Reference Obligation Payment Date immediately preceding such
Additional Fixed Amount Payment Date an amount equal to the greater
of:
[0361] (i) zero; and
[0362] (ii) the amount equal to:
[0363] (a) the product of:
[0364] (1) the related Cumulative Interest Shortfall Amount as of
the Additional Fixed Amount Payment Date immediately preceding such
Reference Obligation Payment Date; and
[0365] (2) the relevant Reference Obligation Interest Shortfall
Compounding Factor for the Fixed Rate Payer Calculation Period
immediately preceding such Additional Fixed Amount Payment Date (or
1.0 in respect of any Additional Fixed Amount Payment Date
occurring after the final Fixed Rate Payer Calculation Date);
[0366] minus
[0367] (b) the Unadjusted Cumulative Interest Shortfall Amount as
of such Reference Obligation Payment Date;
[0368] provided that if the Interest Shortfall Reimbursement Amount
on an Additional Fixed Amount Payment Date would exceed the
Unadjusted Interest Shortfall Reimbursement Amount in respect of
the related Reference Obligation Payment Date, then such Interest
Shortfall Reimbursement Amount shall be deemed to be equal to such
Unadjusted Interest Shortfall Reimbursement Amount.
[0369] Unadjusted Cumulative With respect to each Reference
Obligation and each Reference Interest Shortfall Obligation Payment
Date thereof, an amount equal to the greater of: Amount: (i) zero;
and
[0370] (ii) an amount equal to:
[0371] (a) the Unadjusted Cumulative Interest Shortfall Amount as
of the Reference Obligation Payment Date immediately preceding such
Reference Obligation Payment Date or, in the case of the first
Reference Obligation Payment Date, zero; plus (b) the Interest
Shortfall Amount (if any) in respect of such Reference Obligation
Payment Date; plus (c) an amount determined by the Calculation
Agent as the amount of interest that would accrue on the Unadjusted
Cumulative Interest Shortfall Amount immediately preceding such
Reference Obligation Payment Date during the related Reference
Obligation Calculation Period pursuant to the Underlying
Instruments or, in the case of the first Reference Obligation
Payment Date, zero; minus (d) the Unadjusted Interest Shortfall
Reimburse-ment Amount (if any) in respect of such Reference
Obligation Payment Date.
[0372] Cumulative Interest With respect to each Reference
Obligation, the Cumulative Interest
[0373] Shortfall Amount Shortfall Amount with respect to any Fixed
Rate Payer Payment Date and any Additional Fixed Amount Payment
Date falling on such Fixed Rate Payer Payment Date shall be an
amount equal to the greater of:
[0374] (i) zero; and
[0375] (ii) the amount equal to:
[0376] (a) the sum of:
[0377] (1) the Unadjusted Interest Shortfall Amount for the
Reference Obligation Payment Date corresponding to such Fixed Rate
Payer Calculation Date; and
[0378] (2) the product of:
[0379] (A) the Cumulative Interest Shortfall Amount as of the Fixed
Rate Payer Calculation Date immediately preceding such Fixed Rate
Payer Payment Date (or zero in the case of the first Fixed Rate
Payer Calculation Date); and
[0380] (B) the relevant Reference Obligation Interest Shortfall
Compounding Factor;
[0381] minus
[0382] (b) any Interest Shortfall Reimbursement Amount paid on such
Fixed Rate Payer Calculation Date.
[0383] With respect to any Additional Fixed Amount Payment Date
falling after the Legal Final Maturity Date of the related
Reference Obligation, the Cumulative Interest Shortfall Amount
shall be equal to:
[0384] (i) the Cumulative Interest Shortfall Amount as of the
Additional Fixed Amount Payment Date immediately preceding such
[0385] Additional Fixed Amount Payment Date (or as of the related
Legal Final Maturity Date in the case of the first Additional Fixed
Amount Payment Date occurring after the Legal Final Maturity Date
of such Reference Obligation); minus (ii) any Interest Shortfall
Reimbursement Amount paid on such Additional Fixed Amount Payment
Date.
[0386] Reference Obligation With respect to each Fixed Rate Payer
Calculation Period, an
[0387] Interest Shortfall percentage equal to the sum of:
[0388] Compounding Factor: (i) 100.00%; and,
[0389] (ii) the product of (a) the sum of the Portfolio Reference
Spread and the Relevant Rate, and (b) the quotient of (1) the
number of days in the related Reference Obligation Calculation
Period with respect to such Reference Obligation and (2) 360.
* * * * *