[November 19, 2009] American Recovery and Reinvestment Act: Loan Program for Systemically Important SBA Secondary Market Broker-Dealers Tweet Nov 19, 2009 (Federal Government Documents and Publications/ContentWorks via COMTEX) -- SUMMARY: This interim final rule implements certain provisions of the American Recovery and Reinvestment Act of 2009 ("Recovery Act"). This interim final rule implements Section 509 of the Recovery Act which establishes the Secondary Market Lending Authority within SBA to make loans to systemically important SBA Secondary Market broker-dealers to finance the purchase of the government guaranteed portion of loans originated, underwritten and closed under the Small Business Act and the purchase of pools of guaranteed portions of such loans. EFFECTIVE DATE: Effective Date: This rule is effective November 19, 2009. Comment Date: Comments must be received on or before February 17, 2010. ADDRESSES: You may submit comments, identified by RIN: 3245-AF95 by any of the following methods: * Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments. * Mail: James W. Hammersley, Deputy Assistant Administrator, Office of Policy and Strategic Planning, U.S. Small Business Administration, 409 Third Street, SW., Washington, DC 20416. * Hand Delivery/Courier: James W. Hammersley, Deputy Assistant Administrator, Office of Policy and Strategic Planning, U.S. Small Business Administration, 409 Third Street, SW., Washington, DC 20416. SBA will post all comments on http://www.regulations.gov. If you wish to submit confidential business information ("CBI") as defined in the User Notice at http://www.regulations.gov, please submit the information to James W. Hammersley, Deputy Assistant Administrator, Office of Policy and Strategic Planning, U.S. Small Business Administration, 409 Third Street, SW., Washington, DC 20416, or send an e-mail to [email protected]. Highlight the information that you consider to be CBI and explain why you believe SBA should hold this information as confidential. SBA will review the information and make the final determination whether it will publish the information. FOR FURTHER INFORMATION CONTACT: James W. Hammersley, Deputy Assistant Administrator, Office of Policy and Strategic Planning, at [email protected]. SUPPLEMENTARY INFORMATION: The American Recovery and Reinvestment Act of 2009 ("Recovery Act"), Public Law 111-05, was enacted on February 17, 2009, to, among other things, promote economic recovery by preserving and creating jobs and assisting those most impacted by the severe economic conditions facing the nation. The U.S. Small Business Administration ("SBA") is one of several agencies that will play a role in achieving these goals. As authorized by the Recovery Act, this rule will establish the Secondary Market Lending Authority and a direct loan program for systemically important secondary market broker-dealers to assist with the financing of the guaranteed portion of loans originated, underwritten and closed under the Small Business Act. Recipients of these direct loans must use the proceeds to purchase guaranteed portions of 7(a) loans from participating lenders, Guaranteed Interest Certificates from Registered Holders and Guaranteed Pool Certificates from Registered Holders. The cost of the loan charged to systemically important secondary market broker-dealers will be the combination of the interest rate referenced in 13 CFR 120.1830(e), a fee estimate to cover the probability of default, and the ongoing fee as defined in 13 CFR 120.1830(i). When SBA Lenders sell guaranteed portions of 7(a) loans to broker-dealers through the SBA Secondary Market Program, these transactions enable SBA Lenders to obtain funds to make additional small business loans. While this market has generally recovered to pre-recession levels, offering direct loans to systemically important broker-dealers will provide an important backstop to ensure continued liquidity for the secondary market broker-dealers, which creates a market for SBA Lenders to monetize SBA guaranteed loans and use the proceeds to make new loans to small businesses. The Recovery Act requires SBA to consult with the Board of Governors of the Federal Reserve and the Secretary of the Treasury to establish a process to designate a particular broker-dealer as systemically important. SBA has determined that in order to be designated as systemically important, a broker-dealer must be a Pool Assembler in the existing SBA Secondary Market Program as defined in subpart F, SEC 120.600 of Chapter 13 of the Code of Federal Regulations. Pool Assemblers that are determined to be systemically important secondary market broker-dealers must be in good standing with the SBA and also satisfy the requirements of subpart F, SEC 120.630 of Chapter 13 of the Code of Federal Regulations. In addition, SBA will initially use historical Pool Assembler Secondary Market activity, to determine which Pool Assemblers are vital to the continued operation of the SBA Secondary Market and therefore should be designated systemically important broker-dealers. On a quarterly basis SBA will review Pool Assembler Secondary Market activity and may designate additional broker-dealers as systemically important to the SBA Secondary Market. To ensure that this program operates in compliance with Federal credit program policy, as promulgated by OMB Circular No. A-129, SBA is implementing a "credit elsewhere" test for this program. Therefore, to qualify for a direct loan under this section, a Systemically Important SBA Secondary Market Broker-Dealer ("SISMBD") must also demonstrate that it does not have access to credit on reasonable terms when it is applying to SBA for a loan. A SISMBD may demonstrate the lack of credit on reasonable terms by providing term sheets offered to it by potential lenders or by providing a narrative describing the steps taken by the applicant to obtain credit. This information will be reviewed by SBA as part of the credit review process for a SISMBD Loan Application. SBA will review the loan terms available to a SISMBD relative to the credit offered to similar companies in the prevailing market to determine if the terms being offered are reasonable. II. Section by Section Analysis of New Subpart K of Part 120 Section 120.1800 sets forth the defined terms used in Subpart K. The defined terms in Subpart K include: Administrator. The Administrator of the U.S. Small Business Administration. Authority. The Secondary Market Lending Authority defined herein. Certificate. The document the FTA issues representing a beneficial fractional interest in a Pool (Pool Certificate) of Section 7(a) guaranteed portions, or an undivided interest in the entire guaranteed portion of an individual 7(a) guaranteed loan (Individual Certificate). Collateral (or Collateral for an SISMBD Loan). All Guaranteed Portions and Certificates (and proceeds thereof) that are purchased with SISMBD Loan proceeds, collateral assignments of the SBA Form 1086 (Secondary Market Participation Agreement) or SBA Form 1088 (Form of Detached Assignment for U.S. Small Business Administration Loan Pool or Guaranteed Interest Certificate) for all Guaranteed Portions and Certificates purchased with SISMBD Loan proceeds, agreement for Lender/FTA payment of amounts due under the Guaranteed Portions and Certificates, and any other asset that is pledged to secure an SISMBD Loan. Commitment Letter. The document or documents containing the terms and conditions, including the total dollar limit, under which SBA agrees to lend money for a specific period of time to a Systemically Important SBA Secondary Market Broker-Dealer defined in Section 120.1810 and pursuant to Section 509 of the American Recovery and Reinvestment Act of 2009. FTA. SBA's fiscal and transfer agent. Guaranteed Portion. That portion of a SBA 7(a) loan sold in an SBA Secondary Market transaction. This guaranteed portion of a 7(a) loan once sold is certificated, carries a guarantee backed by the full faith and credit of the United States and bestows upon the Registered Holder the right to receive payments. Individual Certificate. The instrument representing a beneficial interest in the entire guaranteed portion of an individual 7(a) loan sold in the SBA Secondary Market. It is backed by the full faith and credit of the United States. Loan Advance Request Form. The form approved by SBA wherein an SISMBD requests a specific dollar advance under the SISMBD's loan agreement that will be used to purchase certain guaranteed portions or Certificates. This amount, when added to the balance outstanding of the SISMBD's existing SISMBD Loan, must be equal to or less than the loan amount. SBA will advance the lesser of the principal balance or the price paid for a Guaranteed Portion or a Certificate. Loan Agreements. Collectively, any loan agreement executed between SBA and the SISMBD that contains the basic terms and conditions which control the SISMBD Loan, together with any notes, security documentation, custodial agreement, and any other ancillary documentation executed in connection therewith, including by reference, the regulations and other documents referenced in the regulations. On-going Subsidy Fee. An annual fee collected monthly, based on the outstanding SISMBD Loan balance, pursuant to section 509(F) of the Recovery Act, to result in a cost of the direct loan of zero, as determined under the Federal Credit Reform Act of 1990, as amended. The funds generated by the fee serve as a reserve for program losses. The fee will be published in a notice by SBA prior to the commencement of the Program and from time to time thereafter. SBA will communicate the On-going Subsidy Fee to the systemically important broker-dealers. Pool Assembler. A financial institution that is authorized by SBA to: (1) Organize and package Pools by acquiring SBA guaranteed portions of 7(a) loans from Lenders or Certificates from Registered Holders; (2) resell fractional interests in the Pools to Registered Holders; and (3) direct the FTA to issue Certificates. --This is a summary of a Federal Register article originally published on the page number listed below-- Interim final rule with request for comments. CFR Part: "13 CFR Part 120" RIN Number: "RIN 3245-AF95" Citation: "74 FR 59891" Federal Register Page Number: "59891" "Rules and Regulations" [ Back To TMCnet.com's Homepage ]