Residential capital liquidating trust
The NAIC’s Capital Markets Bureau monitors developments in the capital markets globally and analyzes their potential impact on the investment portfolios of US insurance companies.A list of archived Capital Markets Bureau Special Reports is available via the index U. Insurance Industry’s Exposure to Credit Tenant Loans and Equipment Trust Certificates While credit tenant loans (CTLs) and equipment trust certificates (ETCs) are a relatively small portion of insurer investments, they are noteworthy because of their unique structures and strong performance (in terms of low historical default rates).There are a few different types of CTLs as defined by the A Bond Lease Based CTL is structured around the terms of a bond lease, which is “a lease between a lessor and lessee for a specified period of time with specified rent payments that are at least sufficient to repay the note(s).” This type of lease is also known as a “hell or high water lease” because the lessee must continue to pay rent regardless of what occurs to the lease premises.A Credit Lease Based CTL is known as a “double net” lease; it is similar to a Bond Lease Based CTL except “a small set of landlord obligations or real estate risks must be addressed through well-recognized mitigation methods.” For example, the most common such obligation/risk is the repair and maintenance of the property.These subordinated certificates represent the first-loss risk.
Since the EETC structure emerged, financing for aircraft has predominantly utilized this assembly, while railroads continue to primarily utilize ETCs as a financing source. With EETC structures, the senior certificates (those with the highest payment priority)—as in those which are labeled in the diagram above—have a higher credit rating because they are supported by more credit enhancement than the subordinated certificates (i.e., the Class B and Class C Certificates).
This means that the trust owned the asset (i.e., the aircraft) and leased it to a company (i.e., the airline).
Certificates were issued by a bankruptcy-remote trust to investors, who, in turn, received lease payments from the company (or lessee – the airline) until the certificate’s maturity.
This is the same phenomenon that occurred with the insurance industry’s direct mortgage loan origination business. was the largest CTL lessee at 31% of the total number of insurance company CTLs as of February 2012. In addition, 60% of the industry’s CTL exposure was scheduled to mature in more than 10 years, with 12.5% maturing in 20 years or more.
As of February 2012, the NAIC had assigned designations to approximately 1,400 CTLs. This is a favorable trend given life companies’ need for longer-dated assets.