ContractInterest Rate Cap Contract • January 30th, 2020
issuer of the cap contract agrees to pay to the trustee for the benefit of the investment trust certificate holders the excess of One- Year LIBOR plus 100 basis points over the weighted average pool rate (COFI plus a mar- gin) times the outstanding principal balance of the Class N bond in the event One-Year LIBOR plus 100 basis points ever exceeds the weighted average pool rate. The trustee (the same institution that serves as REMIC trust trustee), in exchange for the contributed as- sets, gave the sponsor certificates rep- resenting undivided beneficial ownership in- terests in the Class N bond and the interest rate cap contract. The organizational docu- ments require the trustee to account for the regular interest and the cap contract as dis- crete property rights.
ContractInterest Rate Cap Contract • January 15th, 2020
for all Federal income tax purposes. Thus, the interest rate cap contract is an asset beneficially owned by the several certificate holders and is not an asset of the REMIC trust. Consequently, each certificate holder must allocate its purchase price for the cer- tificate between its undivided interest in the Class N bond and its undivided interest in the interest rate cap contract in accordance with the relative fair market values of those two property rights.
