Securitization After Dodd-Frank:
A Look at the Proposed Risk Retention Rules
April 7, 2011
On March 29, 2011, five federal banking and housing agencies1 and the Securities and Exchange
Commission (collectively, the “Agencies”) released proposed rules implementing the credit risk
retention requirement mandated by the Dodd-Frank Wall Street Reform and Consumer
Protection Act for certain securitization transactions. Section 941 of Dodd-Frank added a new
Section 15G to the Securities Exchange Act of 1934, which directs the Agencies to adopt rulesthat generally require sponsors of asset-backed securities to retain at least 5% of the credit risk
relating to the assets that underlie such asset-backed securities. The risk retention requirement
is intended to provide sponsors with a meaningful incentive to monitor and control the qualityof securitized assets and align the interests of the sponsor with those of investors.
The proposed rules would apply the 5% risk retention requirement to most asset-backed
securities, whether publicly or privately issued and regardless of the whether they are issued orsponsored by a regulated financial institution. However, the proposed rules would exempt
certain asset-backed securities from the risk retention requirement. Chief among them aresecurities backed by “qualified residential mortgages,” which are mortgages that lack certain
product features that the Agencies cited as contributing to the high levels of mortgage
delinquencies and foreclosures since 2007, and that meet certain underwriting standards.
Sponsors of securities backed by qualifying commercial loans, qualifying commercial real estate(“CRE”) loans and qualifying automobile loans also will not be required to retain any credit
risk. The criteria for the various “qualified” assets are intended to define assets that entail very
little credit risk. The Agencies stated that the requirements are intentionally considerably more
stringent than would be required for an asset to receive a pass from a bank examiner.
Also, there is an exemption under the proposed rules for loans guaranteed by the Federal
National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage
Corporation (“Freddie Mac”), for so long as these government-sponsored enterprises continue
to operate under the conservatorship of the Federal Housing Finance Agency and have thebenefit of the Senior Preferred Stock Purchase Agreement, pursuant to which the U.S. Treasury
Department has agreed to fund their net worth deficit as of the end of any calendar quarter
through 2012.
The proposed rules will be published shortly in the Federal Register and comments will be
invited for 60 days. The proposal includes more than 170 questions on which the Agencies are1

The five federal banking and housing agencies are the Federal Deposit Insurance Corporation,
the Board of Governors of the Federal Reserve System, the Office of the Comptroller of theCurrency, the Federal Housing Finance Agency and the Department of Housing and Urban
Development.

Memorandum – April 7, 2011

seeking comment. The risk retention requirement will not apply to asset-backed securities
issued prior to the effective date of the final risk retention rules. Section 15G required the risk
retention rules to be in place by April 17, 2011, but it is clear that the Agencies will not meet that
deadline.
A.

THE GENERAL 5% CREDIT RISK RETENTION REQUIREMENT

In adopting Section 15G of the Exchange Act, Congress sought to address certain aspects of the
securitization process that it believed masked credit risks and complicated actions to mitigate
losses and reduce loan defaults. In particular, Congress cited an “originate to distribute”
model, in which loans were made for the purpose of selling them into securitization pools
without the originator retaining any risk on the assets, as leading to lax credit and loan
underwriting standards, as well as to practices that rewarded volume over asset quality. Suchabuses in the securitization process were identified by Congress as a “major contributing factor”
to the recent financial crisis,2 and it adopted the credit risk retention requirement to better alignthe economic interests of securitizers with those of investors in asset-backed securities.
Under the proposed rules, a sponsor of “asset-backed securities” is generally required to retain
at least 5% of the credit risk relating to the underlying assets (in addition to any other risk that
may be retained to satisfy contractual requirements between the parties). The sponsor is not
permitted to hedge or transfer the credit risk that it is required to retain. The term “sponsor” isdefined to mean “a person who organizes and initiates a securitization transaction by selling ortransferring assets, either directly or indirectly, including through an affiliate, to the issuingentity.” The term “asset-backed security” is defined by incorporating the definition of that termin Section 3(a)(77) of the Exchange Act, where it is generally defined to mean “a fixed income orother security collateralized by any type of self-liquidating financial asset (including a loan,lease, mortgage, or other secured or unsecured receivable) that allows the holder of the security
to receive payments that depend primarily on cash flow from the asset.”
B.

ACCEPTABLE FORMS OF CREDIT RISK RETENTION

Sponsors may retain credit risk in a number of ways. The proposed rules are designed to beflexible in light of the heterogeneity of securitization markets and practices, the fact thatdifferent forms of risk retention may have different accounting implications for sponsors andthe need to reduce the potential for any negative effect on the availability and cost of credit.
Accordingly, sponsors can select from a “menu of options” to comply with the 5% risk
requirement.
Among the acceptable forms of credit risk retention are the following:2

Vertical Risk Retention Option—Under this vertical “slice” option, a sponsor would
have to retain at least 5% of each class or tranche of interests in a securitizationtransaction, regardless of (i) the nature of the class of interests; and (ii) whether theclass of interests has a par value, was issued in certificated form or was sold to

See S. Rep. No. 111-176, at 128 (2010).
Page 2

Memorandum – April 7, 2011

unaffiliated investors. For example, if four classes of interests were issued by anissuing entity as part of a securitization—a senior-rated class, a subordinated class,an interest-only class and a residual interest—the sponsor must retain at least 5% of
the credit risk of each such class or interest.
Horizontal Risk Retention Option—Under this option, a sponsor would have a 5%
“first-loss” exposure to the credit risk of the entire pool of securitized assets. Until
all other interests in the issuing entity are paid in full, the interest retained by thesponsor generally could not receive any payments of principal made on a securitized
asset.



L-Shaped Risk Retention Option—Under this hybrid option, subject to certain
conditions, a sponsor would retain at least 50% of its required risk retention in theform of a vertical slice and 50% in the form of a horizontal first-loss position. The
50/50 split, as opposed to, say, a 70/30 split, is meant to ensure that each component
is sufficiently large enough to affect the sponsor’s incentives.



Representative Sample Option—A sponsor choosing this option would satisfy the 5%
risk retention requirement by retaining a randomly selected representative sample ofassets that is the equivalent in all material respects to the securitized assets. A
sponsor would be required to construct such a representative sample using a processthat satisfies certain requirements. Among these requirements, a sponsor would
have to (i) draw from a pool of at least 1,000 separate assets designated for
securitization, (ii) use a random selection process to identify the loans from this poolthat will be included in the representative sample (taking into account no othercharacteristic of the assets other than their unpaid principal balance), (iii) test the
representative sample for statistical bias and (iv) ensure the similarity of the sample
and the securitized assets within a specified confidence level. In addition, a sponsor
would be required to obtain a report from an independent public accounting firm
addressing the policies and procedures used in selecting the representative sample.
To prevent servicing of the representative sample being conducted in a manner morefavorable to a sponsor, both the representative sample and the securitized assets
must be serviced by the same entity on a blind-pool basis and under the same
contractual standards.



Revolving Asset Master Trusts (Seller’s Interest)—In securitizations collateralized byassets held in a revolving asset master trust, such as credit card accounts or dealer
floorplan loans, a sponsor typically retains a “seller’s interest,” which is a direct,
shared interest with all of the investors in the performance of the underlying assets
or receivables. Under the proposed rules, regulators will allow a sponsor of an assetbacked securities issuance collateralized by assets held in a master trust to satisfy therisk retention requirement by retaining a seller’s interest of at least 5% of the unpaid
principal balance of all assets held in the master trust.

Page 3

Memorandum – April 7, 2011



Asset-Backed Commercial Paper Conduits—The proposed rules include a special risk
retention option for asset-backed commercial paper (“ABCP”) conduits that issue
short-term commercial paper and that satisfy certain requirements. This option
contemplates a securitization structure in which originators of loans and receivables
sell them to an intermediate special purpose vehicle (an “intermediate SPV”) that isorganized by the sponsor. The intermediate SPV then issues a senior interest in theloans and the receivables to the ABCP issuing entity and issues a junior interest to
the originator-seller. The risk retention requirement would be satisfied if this juniorinterest satisfies the requirements for the horizontal risk retention option describedabove, including the requirements that it equal at least 5% of the first loss risk on theassets and that the originator-seller may not transfer, hedge or pledge its retainedinterest. The ABCP conduit then issues short-term (nine months or less) ABCP thatis collateralized by the senior interests. While the intermediate SPV may purchaseassets from multiple originator-sellers, each senior interest sold by the intermediate
SPV to the ABCP conduit must be backed by assets originated by a single originatorseller. This option is only available for loans and receivables originated by such an
originator-seller; it is not available for purchased loans or receivables or for othertypes of assets, such as securities. The ABCP must have 100% liquidity coverage (inthe form of a lending facility, an asset purchase agreement, a repurchase agreement
or similar arrangement) from a regulated liquidity provider. Although this risk
retention option would allow an originator-seller (rather than the sponsor) to retain
the required 5% horizontal residual interest, the sponsor will be responsible for
ensuring an originator-seller’s compliance with all of the requirements of this option.
For ABCP conduits that do not meet the requirements for this option, the sponsor
will need to satisfy the 5% risk retention requirement.

Commercial Mortgage-Backed Securities—The Agencies stated that in the market forcommercial mortgage-backed securities (“CMBS”) it is common for a third party toacquire a “first-loss” position in the form of a “B piece.” To manage its risk
exposure, the B-piece buyer is involved in the selection of pool assets, performs
diligence on those assets, and, as special servicer, services loans in default or having
other non-payment issues. This special servicer role is sometimes overseen by anindependent operating advisor that, on behalf of the investors as a whole, has
consultative rights over major decisions of the special servicer and the ability torecommend replacement of the special servicer. In recognition of this market
practice, the proposed rules would permit a sponsor of asset-backed securities thatare at least 95% collateralized by CRE loans to satisfy the risk retention requirement
if: (i) the B-piece buyer retains a first-loss position in the same form, amount andmanner as would be required of the sponsor under the horizontal risk retention
option (discussed above); (ii) the B-piece buyer pays for the first-loss position in cash
at the closing of the securitization without financing; (iii) the B-piece buyer has
performed a detailed review of the credit risk of each asset in the pool prior to thesale of the asset-back securities by examining, at a minimum, the underwriting
standards, collateral and expected cash flows of each commercial loan in the pool;(iv) the B-piece buyer is not affiliated with any party to the securitization transaction

Page 4

Memorandum – April 7, 2011

(other than investors) and does not have control rights in the securitization(including servicing) that are not collectively shared by all other investors in the
securitization (unless the transaction provides for an independent operating
advisor); (v) the sponsor makes certain required disclosures to potential investors
regarding the B-piece purchaser (e.g., identifying information, description ofexperience in CMBS transactions) and other material information on the transaction;and (vi) the compliance by the B-piece purchaser with the proposed rules’
restrictions relating to the hedging and transferring of retained interests.
The 5% risk retention requirement will be in addition to any amount that a sponsor may berequired to place in a “premium capture cash reserve account.” The Agencies stated that inmany securitization transactions prior to the financial crisis, particularly Alt-A securitizations,
sponsors monetized the excess spread that was expected to be generated over time by sellingpremium or interest-only tranches at the outset, receiving an amount for those tranches that waswell in excess of any economic interest retained by the sponsor. Under the proposed rules, if asponsor structures a securitization to monetize excess spread on the underlying assets, then thesponsor will be required to place such amount in a separate reserve account to cover losses on
the underlying assets before such losses are allocated to any other interest or account.
The proposed rules would allow a sponsor that satisfies its risk retention requirement undereither the vertical risk option or the horizontal risk option to allocate the retained risk to any
originator of the securitized assets that contributed at least 20% of the underlying assets. An
originator may not be allocated a greater portion of the risk than the percentage of the
securitized assets that it contributed by the originator. The sponsor will be responsible for theoriginator’s compliance with, among other things, the prohibition on an originator hedging ortransferring the risk it retains.
C.

THE RESTRICTIONS ON HEDGING OR TRANSFERRING

As a general matter, the proposed rules restrict a sponsor from transferring any interest or
assets that it is required to retain to any person other than an affiliate whose financial
statements are consolidated with those of the sponsor (a “consolidated affiliate”). The proposed
rules also generally restrict a sponsor or any of its consolidated affiliates from hedging thecredit risk the sponsor is required to retain. Limited exceptions exist for hedging of certain risks
that are not materially related to the credit risk of the sponsor’s retained interest or of theparticular assets that underlie the securitization transaction. Permitted hedges include
positions related to overall market interest rate movements; currency rates; or the overall valueof a particular broad category or index of asset-backed securities (such as home prices), subject
to limitations on the portion of the index that may be represented by the specific securitizationtransaction or applicable issuing entities. Hedges based on securities that are backed by similar
assets originated and securitized by other sponsors also would be permitted. The proposed
rules also restrict a sponsor and its consolidated affiliates from pledging as collateral for any
obligation any interests or asset that the sponsor is required to retain, unless the obligation iswith full recourse to the sponsor or consolidated affiliate.

Page 5

Memorandum – April 7, 2011

Importantly, an originator, originator-seller or a third party purchaser that retains credit risk inaccordance with the proposed rules must comply with these restrictions to the same extent as
the sponsor.
D.

THE EXEMPTION FOR “QUALIFIED RESIDENTIAL MORTGAGES”

Section 15G of the Exchange Act specifically provides that a securitizer shall not be required toretain any part of the credit risk for an asset that is transferred or sold through the issuance ofasset-backed securities by the securitizer if all of the assets that collateralize such securities are“qualified residential mortgages” (sometimes referred to herein as “QRMs”). However, DoddFrank left it to regulators to define what constitutes a qualified residential mortgage.
The proposed rules provide a framework for assessing whether residential mortgage assets
underlying a securitization are of such quality that they merit a complete exemption from any
risk retention requirement. The Agencies acknowledged that many prudently underwrittenmortgage loans will not satisfy the QRM criteria. The key terms and conditions under which a
residential mortgage will qualify as a QRM under the proposed rules are discussed below.
1.

Basic Eligibility Criteria

The proposed rules limit a qualified residential mortgage to a closed-end, first-lien mortgage topurchase or refinance a one-to-four family property, at least one unit of which is the principal
dwelling of a borrower who satisfies certain credit requirements. By definition, a qualified
residential mortgage does not include construction loans, “bridge” loans with a term of 12months or less, loans to purchase time-share properties or reverse mortgages. The maturity
date of every qualified residential mortgage must not exceed 30 years.
Every qualified residential mortgage must also correspond to a written application submitted
by a borrower that contains an acknowledgement by the borrower that the information
provided in the application is true and correct as of the dated executed by the borrower and that
any intentional or negligent misrepresentation of the information provided in the application
may result in civil or criminal penalties.
2.

Satisfaction of Underwriting Standards

To ensure that qualified residential mortgages are of the highest quality, the proposed rules
require that they meet certain underwriting standards. These standards include the following:Maximum Debt-to-Income Ratios—A borrower’s debt-to-income (“DTI”) ratio for
housing debt (the so-called “front-end” DTI ratio) must not exceed 28% percent, andthe DTI ratio for a borrower’s total debt (the so-called “back-end” DTI ratio) must
not exceed 36%. These calculations would be based on monthly debt and monthly
gross income figures and would be assessed as of a date that is no more than 60 days
prior to the closing of a particular mortgage transaction.

Page 6

Memorandum – April 7, 2011

Maximum Loan-to-Value Ratios—A borrower’s maximum loan-to-value (“LTV”) ratio
must not exceed 80% in the case of a home purchase transaction, 75% in the case of arate-and-term refinancing and 70% in the case of a cash-out refinancing. LTV ratios
must not include mortgage insurance in calculations.



Minimum Down Payment—If a mortgage transaction is for the purchase of a one-tofour family property, then a borrower will need to provide a cash down payment in
an amount equal to the sum of: (i) all closing costs payable by the borrower; (ii) 20%of the lesser of either the estimated market value of the appraised property or thepurchase price; and (iii) any amount by which the purchase price exceeds theestimated market value of the appraised property. Consistent with existingguidance by the Department of Housing and Urban Development, the acceptablesources of “borrower funds” for the down payment would be savings and checking
accounts, cash, stocks and bonds, gifts and funds from eligible down payment
assistance programs. The proposed rules do not count toward this minimum down
payment amount any funds that are subject to a contractual obligation by theborrower to repay or any funds obtained from a person (other than the borrower)that has an interest in the sale of the property.

3.

Lack of Disqualifying Product Features

To qualify as a QRM, a residential mortgage must not have certain product features that theregulators view as having contributed to the high levels of delinquencies and foreclosuresduring the financial crisis. These include terms permitting negative amortization, interest-only
payments or significant interest rate increases.
Among other things, the proposed rules prohibit the terms of a QRM from requiring any“balloon payment” (i.e., a scheduled payment of principal and interest that is more than twiceas large as any earlier scheduled payment) and also prohibit a QRM from having a“prepayment penalty” provision (i.e., a penalty imposed solely because the mortgage obligation
is prepaid in full or in part). In addition, while the proposed rules allow both fixed-rate andadjustable-rate mortgages to qualify as QRMs, with regard to adjustable-rate mortgages,
regulators will expect that limits be imposed on the amount by which interest rates may
increase. Therefore, to limit the potential for “payment shocks,” typically in connection withthe expiration of “teaser rates,” the proposed rules will require any adjustable-rate mortgage
that qualifies as a QRM to have payment caps of 2% in a 12-month period and 6% over the lifeof the loan.
The proposed rules will also prohibit the total points and fees payable by a borrower inconnection with a mortgage transaction from exceeding 3% of the total loan amount.
4.

Lack of Disqualifying “Derogatory Factors” Relating to Borrowers

The proposed rules also provide a set of so-called “derogatory factors” relating to a borrower
that, if satisfied, would disqualify a mortgage from being a QRM. These derogatory factors
include a delinquency or default on debt repayment, bankruptcy, foreclosure or repossessions.
Page 7

Memorandum – April 7, 2011

Specifically, an originator is required to verify and document, within 90 days prior to theclosing of the mortgage transaction, that:

the borrower is not currently 30 or more days past due, in whole or in part, on any
debt obligation;
the borrower has not been 60 or more days past due, in whole or in part, on any debt
obligation within the preceding 24 months; andthe borrower has not, within the preceding 36 months, been a debtor in a bankruptcy
proceeding, had property repossessed or foreclosed upon, engaged in a short sale ordeed-in-lieu of foreclosure or been subject to a judgment for collection of any unpaid
debt.

An originator will be deemed to have satisfied the documentation and verification requirements
by obtaining credit reports from at least two consumer credit reporting agencies, demonstratingthat the borrower meets the specified requirements.
5.

Other Requirements

There are a number of other requirements that must be met for a residential mortgage to qualify
as a QRM. The proposed rules provide for a limited set of servicing requirements that aredesigned to mitigate the risk of default on residential mortgages. An originator of a QRM must
include terms in the mortgage transaction documents under which the creditor commits to havespecified servicing policies and procedures for the loan, including requirements regarding loss
mitigation workouts, procedures to address subordinate liens on the same property securingother loans held by the same creditor (or any of its affiliates) and responsibility for theassumption of these requirements if servicing rights with respect to a QRM are sold ortransferred. Such policies and procedures would have to be disclosed to a borrower at or prior
to a mortgage closing.
Specifically, these policies and procedures must require the initiation, within 90 days after amortgage has become delinquent, of loss mitigation activities or programs, such as loan
modification, where the net present value of such action or program exceeds the net present
value of the recovery through a foreclosure proceeding. The loss mitigation policies andprocedures must also take into account a delinquent borrower’s ability to repay and “otherappropriate underwriting criteria” that the Agencies do not specifically identify. In addition,these policies and procedures must obligate the creditor to implement or maintain servicing
compensation arrangements that are consistent with the creditor’s commitment to engage inloss mitigation activities. The policies and procedures prescribed under the proposed rules also
require that the creditor’s procedures with respect to subordinate liens held by such creditor (orany of its affiliates) on the mortgaged property be disclosed to potential investors if the creditor
subsequently collateralizes the QRM.
The limited servicing policies and procedures required under the proposed rules are only
applicable to QRMs and, importantly, are not intended to foreclose ongoing interagency efforts
to develop national mortgage servicing standards that, if adopted, would apply broadly toresidential mortgages, regardless of whether they are QRMs, are securitized or are held inPage 8

Memorandum – April 7, 2011

portfolios by financial institutions. This limited set of policies and procedures applicable to
QRMs reflects a compromise by the OCC and the FDIC over the appropriate forum for
implementing national mortgage servicing standards. After some negotiation, these two
agencies, with the assistance of the Federal Reserve, agreed to include a limited set of servicing
standards in the proposed risk retention rules, while continuing to work with other regulators
in developing a more comprehensive set of mortgage servicing standards that all servicers
would have to meet.
Besides requirements relating to loss mitigation and servicing disclosure requirements, a“depositor” of an asset-backed security (generally, the person that receives or purchases andtransfers or sells the securitized assets to an issuing entity or, in the case of a securitizationtransaction in which there is not an immediate transfer of assets, the sponsor itself) must (i)evaluate the effectiveness of its internal supervisory controls with respect to the process for
ensuring that all assets that collateralize an asset-backed security are QRMs and (ii) conclude
that is internal supervisory controls are effective. A depositor that has complied with thiscertification requirement but later determines, post-closing, that one or more of the residential
mortgage loans underlying the asset-backed securities does not meet all of the QRM criteria,must repurchase the non-conforming loan or loans from the issuing entity no later than 90 days
after such determination.
E.

OTHER QUALIFIED ASSET CLASSESIn addition to the general exemption for qualified residential mortgages, the proposed rules
provide special treatment for qualified loans in certain other asset classes. Asset-backed
securities that are collateralized exclusively by qualifying commercial loans, qualifying CRE
loans and qualifying automobile loans would not require risk retention. As with QRMs, thesequalifying loans would need to meet underwriting standards that ensure they are of very low
credit risk, and not merely standards designed to ensure that loans attain a “pass” credit under
existing supervisory practices of the federal banking regulators. Accordingly, the underwriting
standards applicable to loans in these asset classes are generally as conservative as therequirements for QRMs. The underwriting standards applicable to these asset classes are
summarized below. The proposed rules do not specify any required servicing standards forloans other than QRMs.
Commercial Loan Asset Class—The underwriting standards for commercial loans will
require an originator to conduct an analysis of the borrower’s ability to service all
outstanding debt over the next two years and to determine that, following
origination, the borrower will have a total liabilities ratio of 50% or less, a leverage
ratio of 3.0 or less and a debt service coverage (“DSC”) ratio of no less than 1.5. The
loan payment amount must be determined based on straight-line amortization ofprincipal and interest over a term that does not exceed five years from origination,and the primary repayment source for the loan must consist of business revenue ofthe borrower. Loan documentation must include covenants that restrict theborrower’s ability to incur additional debt or transfer or pledge its assets. There
must also be financial reporting covenants, which provide an originator (orsubsequent holder) with financial information on at least a quarterly basis.
Page 9Memorandum – April 7, 2011

F.



CRE Loan Asset Class—The underwriting standards for CRE loans will focus
principally on the borrower’s ability to repay the loan (including a requirement thata borrower have a DSC ratio of at least 1.7 or greater or, in the case of properties witha demonstrated history of stable net operating income, 1.5 or greater); the value of,and the originator’s security interest in, the collateral; a combined LTV ratio of no
more than 65%; and whether the applicable loan documentation includes
appropriate collateral-protecting covenants.



Automobile Loan Asset Class—The underwriting standards for automobile loans are
generally comparable to industry standards for unsecured lending, focusing
principally on the borrower’s ability to repay the loan. At the time of origination, theborrower’s DTI ratio must be no greater than 36% and the borrower’s credit history
must be clear of any delinquency of 30 days or more within the past 30 days, as well
as of any bankruptcy, foreclosure or similar proceeding within the previous 36
months. The borrower must also meet down payment requirements and will be
prohibited from deferring principal or interest under the loan documents. These
conservative underwriting standards are, in large measure, a reflection of the highly
depreciable nature of the collateral involved in automobile loans.

TREATMENTOF
GOVERNMENT-SPONSORED
GOVERNMENT AGENCIESENTERPRISESAND

For so long as Fannie Mae and Freddie Mac continue to operate under the conservatorship of
the Federal Housing Finance Agency and have the benefit of the Senior Preferred Stock
Purchase Agreement with the U.S. Treasury Department, the 100% guarantees they provide formortgage-backed securities that they issue would be deemed to satisfy the risk retention
requirement. This treatment is significant because these government-sponsored enterprises,
together with other government agencies (most notably, the Federal Housing Administration)
whose guarantees will exempt a securitization transaction from the risk retention requirement(provided that such transaction is collateralized solely by loans guaranteed by such agencies),
backstop approximately 90% of loans currently being issued in the residential mortgage loan
market.
***For more information about the proposed risk retention rules, please contact a member ofSimpson Thacher’s Financial Institutions Group.
This memorandum is for general informational purposes and should not be regarded as legal advice. Furthermore,
the information contained in this memorandum does not represent, and should not be regarded as, the view of any
particular client of Simpson Thacher & Bartlett LLP. Please contact your relationship partner if we can be ofassistance regarding these important developments. The names and office locations of all of our partners, as well as
additional memoranda, can be obtained from our website, www.simpsonthacher.com.
The contents of this publication are for informational purposes only. Neither this publication nor the lawyers who authored it are
rendering legal or other professional advice or opinions on specific facts or matters, nor does the distribution of this publication to
any person constitute the establishment of an attorney-client relationship. Simpson Thacher & Bartlett LLP assumes no liability inconnection with the use of this publication.

Page 10Memorandum – April 7, 2011

UNITED STATESNew York
425 Lexington Avenue
New York, NY 10017-3954+1-212-455-2000

Los Angeles
1999 Avenue of the Stars
Los Angeles, CA 90067+1-310-407-7500

Palo Alto
2550 Hanover Street
Palo Alto, CA 94304+1-650-251-5000

Washington, D.C.
1155 F Street, N.W.
Washington, D.C. 20004+1-202-636-5500

EUROPE
LondonCityPoint
One Ropemaker Street
London EC2Y 9HUEngland+44-(0)20-7275-6500

ASIA
Beijing3119 China World Office 1
1 Jianguomenwai Avenue
Beijing 100004
China+86-10-5965-2999

Hong Kong
ICBC Tower
3 Garden Road, Central
Hong Kong+852-2514-7600

Tokyo
Ark Mori Building
12-32, Akasaka 1-Chome
Minato-Ku, Tokyo 107-6037
Japan+81-3-5562-6200

SOUTH AMERICA
São Paulo
Av. Presidente Juscelino Kubitschek, 1455
12th Floor, Suite 121
São Paulo, SP 04543-011
Brazil+55-11-3546-1000

www.simpsonthacher.com