Friday, July 9, 2010

Mutual Fund Fee-Backed Securitization Under Regulatory Fire

NEW YORK (Standard & Poor's) July 6, 2010--Standard & Poor's Ratings Services
is monitoring regulatory discussions surrounding the guidelines that govern
how mutual funds charge 12b-1 fees to investors. 12b-1 fees are deferred fees
charged by mutual funds to cover certain administrative, marketing, and sales
expenses. The SEC has stepped up its discussions on the topic lately, and
possible reforms could have an impact on the ratings Standard & Poor's assigns
to securitized 12b-1 fee trusts.

Tranches in 12b-1 fee trusts generally cannot achieve ratings at the 'AAA'
level under Standard & Poor's current criteria due to the risks we believe are
posed by potential changes in the regulatory framework for mutual funds.
Periodic regulatory discussions over the past several years have reinforced
these considerations. Most recently, SEC chairman Mary Shapiro commented "We
need to critically rethink how 12b-1 fees are used and whether they remain
appropriate," as reported in the July 6, 2010, issue of The Wall Street
Journal.

It's currently uncertain whether regulatory change will occur and in what
form. Therefore, the potential effect of any such regulatory change on the
outstanding ratings is unknown.

The outstanding rated 12b-1 fee trusts are backed by fees on static pools of
mutual fund shares. The performance of the trusts does not depend on the
issuance of new shares under the 12b-1 regulation. Therefore, unless
regulation alters fees paid by outstanding shares, it's unlikely that the
transactions, or their current ratings, would be affected solely as a result
of the regulation. Additionally, these transactions typically mature after
eight years, as that is the maximum period mutual funds can collect 12b-1
fees. Depending on the timing of any possible new regulations, the outstanding
transactions may have time to repay their notes before regulatory changes take
effect.

Standard & Poor's will continue to monitor developments in this area. As more
information about regulatory changes becomes known, we will take appropriate
rating actions as they are warranted. We will also continue to monitor the
performance of this asset class and provide market updates as needed.

Related Criteria And Research:

"Mutual Fund Fee Securitizations And Underlying Fund Net Asset Values."

"Rating Mutual Fund Fee-Backed Securities"

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