Legal maturity

The variable pay term note (VPTN) structure was first introduced in automobile transactions in the United States. It was created to mitigate two features of the pass-through structure the long legal maturity of the notes even if they have a short average life, and the uncertainty in the redemption profile. 

The combination of this redemption profile with a substitution period and/or a cash accumulation account would allow the creation of bullet securities, although at the time of writing this has not been done for a European issuer. This is not the only way to create notes that expect to have a bullet redemption profile. In the Delphinus 2002-11 transaction, the substitution period extended up to the step-and-call date, so the notes are likely to be redeemed on that date. However, if for any reason the issuer is not able or willing to call the notes, they will redeem as in a standard pass-through transaction, and so the legal maturity is dependent on the term of the underlying mortgages. 

The master trust structure gives originators a high degree of flexibility over the redemption profiles of the notes they can create. The emphasis has understandably been on creating bullet securities in order to attract investors who would prefer to invest in securities with traditional bullet redemption profiles and short legal maturities. There have also been notes with a scheduled redemption profile issued from master trust structures and, in practice, the redemption profiles that can be created will only be limited by the size of the trust, the length of the required accumulation period, and any other note redemptions that are due from the same trust. 

These tests are calculated on a regular basis as well as each time the composition of the portfolio is altered, that is, each time assets are sold, purchased, or paid off ahead of their legal maturity date. If the test results fall below the required minimum, trading activity is restricted to only those trades that will improve the test results. Certain other compliance tests are viewed as more critical in terms of maintaining note repayment integrity therefore, if any of them are failed, the cash flows will be diverted from the normal priority of payments and begin sequentially paying off the notes based on seniority until the test results improve. These include ... 

The legal maturity of the collateralized debt security is less than the legal maturity of the notes, and the expected maturity is less than the expected maturity of the notes. 

The legal maturity of the deal is 99 years, but due to the optional redemptions described below, the deal is expected to be terminated in about 12 years. 

The note in figure 13.3 pays a coupon equal to the current 2-year government benchmark plus a fixed spread of 1 percent. It has a legal maturity of six years, but it will mature in three years if, two years from the issue date, 6-month LIBOR stands at 6 percent or below. Amortization takes place on subsequent rate-fixing dates according to the specified schedule. If at any time less than 20 percent of the nominal value remains, the note is canceled. 

It remains to be seen how the debates in the US and its Congress develop and what the legal implications might be, but if TSCA were to develop gradually in accordance with the suggestions above, it could well mature into a legal system with the same protective functions as REACH, or preferably into something even better. 

In the social production of their life, men enter into definite relations that are indispensable and independent of their will, relations of production that cor respond to a definite stage of development of their productive forces. .. At a certain stage of their development, the material productive forces of society enter into contradiction with the existing relations of production, or - what is but a legal expression for the same thing - with the property relations within which they have been at work hitherto. From forms of development of the productive forces these relations turn into their fetters. Then begins an epoch of social revolution.. .. No social formation ever perishes before all the productive forces for which there is room in it have developed and new, higher relations of production never appear before the material conditions for their existence have matured in the womb of the old society itself. ... 

The nonasset trigger events relate primarily to the financial health of the originator and servicer, the maintenance of the minimum seller s share, and the minimum trust size. If a nonasset trigger event occurs, all principal payments from the trust (including the seller s share) will be used to redeem the notes. However, in this case the Class A notes will redeem in order of legal final maturity date. When the Class A notes have been redeemed in full, the Class B, Class C, and Class D notes will be redeemed in turn. 

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