Letter concludes that certain issuances by a U.S. agency created under the Foreign Assistance Act may qualify as Type I securities.

O

Comptroller of the Currency

Administrator of National Banks

Washington, DC 20219

May 3, 2004 Interpretive Letter #1001

August 2004

12 CFR 1

Re: [ ] (“Bank”)

Dear [ ]:

This responds to your inquiry concerning whether the Bank may purchase and hold certificates

issued by the [ ] (“ ”) and, if so, whether the

certificates qualify as Type I securities under 12 C.F.R. Part 1. For the reasons discussed below,

we conclude that the certificates qualify as Type I securities and are permissible for investment

by national banks without limitation, subject to safety and soundness considerations.

The Bank has asked whether it may invest in unrated certificates of participation (“Certificates”)

representing undivided fractional interests in a stream of principal and interest payments of up to

$130 million due to [ ] under a loan it made to a third party. The interest and principal

payments under the loan may total up to $130 million. The Certificates are to be sold in initial

purchase amounts of $1 million and additional increments of at least $100,000. [ ] has

guaranteed the payment of principal and interest payments due under the Certificates. The [ ]

guaranty, in turn, is backed by the full faith and credit of the United States. [ ] will use the

proceeds of the Certificates to fund the loan to the third party.

[ ] is an agency of the U.S., created under the Foreign Assistance Act.1 [ ] funds loans for

projects sponsored by or involving U.S. businesses in less developed countries through the

issuance of certificates of participation. [ ] also guarantees investors in certificates of

participation against loss on terms and conditions [ ] may establish

he loan to the third party.

[ ] is an agency of the U.S., created under the Foreign Assistance Act.1 [ ] funds loans for

projects sponsored by or involving U.S. businesses in less developed countries through the

issuance of certificates of participation. [ ] also guarantees investors in certificates of

participation against loss on terms and conditions [ ] may establish. [ ] has authority to

issue guaranties backed by the full faith and credit of the United States.2

A national bank may deal in, underwrite, purchase, and sell Type I securities for its own

account.3 Type I securities include obligations issued or guaranteed by a U.S. governmental

1 22 U.S.C. §§ 2191, 2194.

2 22 U.S.C. § 2197(c).

3 See 12 C.F.R. § 1.3(a) and OCC Interpretive Letter No. 579 (Mar. 24, 1992).

department or agency if the obligation or guaranty commits the full faith and credit of the U.S.

for the repayment of the obligation.4 Type I securities also include obligations representing an

interest in a loan or a pool of loans made to third parties where a U.S. department or agency

validly pledges the full faith and credit of the U.S. for the full and timely payment of the

principal and interest on the loan(s) in the event of non-payment by the third party obligor(s).5

The amount of Type I securities a national bank may deal in, underwrite, purchase, and sell is not

limited to a specific percentage of a bank’s capital and surplus, and subject only to the exercise

of prudent banking judgment.6

The Certificates appear to qualify as Type I securities. The Certificates represent undivided

fractional interests in principal and interest payments due to [ ] under a loan it made to a third

party. [ ] unconditionally guarantees the payment of principal and interest owed to

Certificate holders. The [ ] guaranty is backed by the full faith and credit of the U.S

dgment.6

The Certificates appear to qualify as Type I securities. The Certificates represent undivided

fractional interests in principal and interest payments due to [ ] under a loan it made to a third

party. [ ] unconditionally guarantees the payment of principal and interest owed to

Certificate holders. The [ ] guaranty is backed by the full faith and credit of the U.S. Thus, a

national bank may be able to purchase and hold the Certificates as Type I securities in unlimited

amounts, subject to the exercise of prudent banking judgment.

The Certificates are one example of the instruments that [ ] may issue and guarantee. Other [

] issuances with different terms and guaranties, and [ ] insured bonds,7 may not qualify as

Type I securities. It is the responsibility of the purchasing national bank to carefully review the

terms of any securities to determine whether the issuance qualifies as a Type I security.

I trust the foregoing is responsive to your inquiry. If you have additional questions, please do

not hesitate to contact me at (202) 874-5210.

Sincerely,

signed

Tena M. Alexander

Special Counsel

Securities & Corporate Practices Division

4 12 C.F.R. § 1.2(j)(2).

5 12 C.F.R. § 1.2(j)(3).

6 Id.

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2

7 [ ] insurance may be purchased by a bond issuer as a credit enhancement for a bond issue. [ ] insurance is

limited by its terms, i.e., the insurance may not necessarily cover the entire payment obligation under the bond in

the event of a payment default and the insurance coverage will compensate the bondholder only for a default caused

by an insured political event that [ ] is authorized to insure

ay be purchased by a bond issuer as a credit enhancement for a bond issue. [ ] insurance is

limited by its terms, i.e., the insurance may not necessarily cover the entire payment obligation under the bond in

the event of a payment default and the insurance coverage will compensate the bondholder only for a default caused

by an insured political event that [ ] is authorized to insure. [ ] may insure against risks such as the risk of loss

of all or part of an investment in an approved project due to expropriation or confiscation by action of a foreign

government, loss due to war, revolution, insurrection or civil strife, and loss due to business interruption caused by

these risks or transfer or convertibility risk. 12 U.S.C. § 2194(a)(1)(A) - (D).