The SEC’s Division of Corporation Finance has
issued a note to Trust Indenture Act C&DI 202.01 stating that the division
is considering the impact of a recent court decision. This
C&DI provides that certificates (issued under a Securities Act registration
statement) representing beneficial ownership in a trust, with assets that
include pooled mortgage loans with multiple obligors and a third-party
guarantee of partial payment of the certificates, are exempt under Trust
Indenture Act Section 304(a)(2) and (7). In Retirement Board of the Policemen's
Annuity and Benefit Fund of the City of Chicago, et al. v. The Bank of New York
Mellon, U.S. District Court, S.D. New York, Fed. Sec. L. Rep. ¶96,783, (Apr. 3,
2012), the court held, in the context of denying a motion to dismiss, that the
Trust Indenture Act applies to asset-backed securities in the form of
certificates.
The
parties in the case agreed that the Trust indenture Act applied to
mortgage-backed notes, but disagreed whether the Act applied to certificates
issued by certain trusts. In support of its claim that the certificates were
equity securities and not debt securities, The Bank of New York Mellon relied
on various treatises and C&DI 202.01. The court declined to defer to the
SEC staff’s interpretive guidance and instead, based on Internal Revenue Service authority
and other court decisions, determined that the certificates were debt
securities subject to the Trust Indenture Act.
The division issued
the note to Trust Indenture Act C&DI 202.01 on May 3, 2012.