Opinion No. 14-30 RE: Certificates of Eligibility in relation to Special Purpose Vehicle Act

SEC Building, EDSA, Greenhills, Mandaluyong City Securities and Exchange Commission Republic of the Philippines Department of Finance

Office of the General Counsel

10 November 2014

relation to Special Purpose Vehicle Re: Certificates of Eligibility in SEC-OGC Opinion No. 14-30 Act

6772 Ayala Avenue Makati City 1226 PUYAT JACINTO & SANTOS 12/F VGP Center

Attention: Atty. Job M. Ambrosio & Atty. Fidel T. Valeros, Jr

Gentlemen:

First Leg Transfers and the issuance of Certificates of Eligibility ("COEs") for certain Asset Management (SPV-AMC), Inc. ("FSAMI"), requesting for our opinion regarding the applicability of SEC Memorandum Circular No. 3, Series of 2010 (MC 3-2010)' to certain Second Leg Transfers.3 This refersto your letter dated 6 July 2010, on behalf of your client First Sovereign

September 2004. Its primary purpose is to "invest in, or acquire Non-Performing Assets (NPAs) of Financihl Institutions (FIs). FSAMI is a special purpose vehicle (SPV) duly registered with the Commission on 17

You have requested us to confirm your following positions:

1. MC 3-2010[only applies to non-performing assets the First Leg Transfers of which occurred 2 Provided that FSAMI complies with all other requirements under the Special Purpose Vehicle on or before 9 April 2005: and

after 10 April 2010 may still be granted a COE by the Commission. Act, the Amended Special Purpose Vehicle Act," the Implementing Rules and Regulations issued in relation thereto, and rules and regulations which may be issued by the Commission from time to time, Second Leg Transfers of non-performing assets acquired by FSAMI made

Series of 2010 to First Leg Memorandum 2005 Transfers occurring after 9 April The applicability Circular of :: SEC No. 3.

I Issued on 10 June 2010. 2Transfer of non-performing assets from a financial institution to a special purpose vehicle. 3 Transfer of non-performing assets from a special purpose vehicle to a third party. 4 Second Article, Arti$les of Incorporation of FSAMI. 5 Republic Act No. 9182 Republic Act No. 9343

Re: Certificates of Eligibility in relation to SEC-OGC Opinion No. 14-30 Special Purpose Vehicle Act

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Implementing Rules and Regulations (IRR). The main objective of the law is to help 9182), fully took effect on 12 April 2003 (not 9 April 2003), with the effectivity of the liquid and be able to have more funds available for lending to businesses which would spur economic growth. By providing incentives and benefits," such as tax exemptions, institutions were encouraged to participate in the transactions under RA 9182. Philippine banks dispose of their non-performing assets ("NPAs") in order to become more Republic Act No. 9182, also known as the Special Purpose Vehicle Act of 2002 ("RA

transactions should occur within the prescribed period under the said law. The First Leg Transfer from a FI to an SPV should be made within two (2) years from the date of March 2003, hence, it became effective on 12 April 2003, or fifteen (15) days thereafter. effectivity of its IRR. The IRR was published in a newspaper of general circulation on 28 Thus, the First Leg Transactions covered are those made on or before 11 April 2005. In order to avail of the tax benefits and other incentives under RA 9182, the

thereof, the NPA$ that are covered are those which are acquired under RA 9182, or those if the benefits or ihcentives under RA 9182 may be applicable to the transfer. Under item 1(a) acquired not later than 11 April 2005. In relation thereto, the Commission issued MC 3-2010, for the purpose of determining

2005, but not later than 11 April 2005, are still covered by MC 3-2010. effectivity of the (RR of RA 9182. Consequently, First Leg Transfers made after 9 April which made on or before l1 April 2005, the last day of the two-year period from the Hence, MC 3-2010 covers only those First Leg Transfers under RA 9182, or those

Leg Transfers occurring after 10 April 2010 Eligibility to F$AMI for Second The . Issuanceof Certificateof

9343) to provide an extension of the period within which to avail of the incentives and benefits under the Act. RA 9343, which amends RA 9182, was signed into law on 24 April hence, it becameeffective on 14 May 2006 or fifteen (15) days after its publication, and not 27 July 2006 as ybu manifested in your letter. 2006: RA 9343 was published in newspapers of general circulation on 29 April 2006;10 RA 9182 |was amended in 2006 with the passage of Republic Act No. 9343 ("RA

Second Leg Tran$fers from an SPV to a third party, the benefits and incentives are applicable if the same are made within five (5) years from the date of acquisition of the non-performing (2) years from the date of effectivity of the said law, that is, until 14 May 2008. As to asset by the SPV from the FI. Under RA 9343, the First Leg Transfers which are covered are those made within two

2 Section 28, IRR of RA 9182. +o Malaya and Manila Times. 7 Sections 15, 16, and 17, RA 9182. 8 Manila Standard.

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issuance of a COE, the following conditions must be complied: ("MC 8-2011")1Po determine if the Second Leg Transfer is covered by the incentives and benefits under RA 9343, and for the issuance of the COE for the transactions covered. Under this Memorandum Circular, in order for the Second Leg Transaction to be qualified for the Accordingly, the Commission issued Memorandum Circular No. 8, Series of 2011

1. The NPAs were acquired under RA 9343, meaning, the First Leg Transfer 2 The Second Leg Transfer must be made within five (5) years from the date of the occurred on or before 14 May 2008;

3 Applications for a Certificate of Eligibility (COE) must be filed with the First Leg Transfer; and

Commission on or before the sixtieth (60th) day from the expiration of the five- year period referred to above.

FSAMI for Second Leg Transfers of NPA's acquired by FSAMI made after 10 April 2010 provided that the abovementioned conditions have been complied with, and indeed, twenty- one (21) COEs were issued based on records with the Commission covering the period from the transactions may be covered by RA 9343. In view thereof, COEs may be issued to 18 May 2010 to 29 August 2013. Although the transactions occurring after 10 April 2010 are not covered by RA 9182.

9182. Further, with the passage of RA 9343 and the subsequent issuance of SEC MC No. 8- of the incentives under RA 9182 and RA 9343. To reiterate, MC 3-2010 applies to First Leg Transfers of non-performing assets which occurred on or before 11 April 2005 under RA 2011, COEs may be granted for Second Leg Transfers occurring after 10 April 2010, following the three conditions enumerated above. We hope that the above discussion made clearer the rules regarding the applicability

Please be guided accordingly.

Very truly yours.

CAMILO S. CORREA General Counsel A

11 Issued on 14 October 2011.