Trusts – New “Preferred B” guarantee

By Communication "A" 4491 dated February 3, 2006 and Communication “A” 4501 dated February 26, 2006, the Argentine Central Bank added as guarantee “Preferred B” (those guarantees which maturity date is higher than six months) those guarantee trusts regulated by Title I of Law No 24,441 set up with the purpose of collateralizing the repayment of credits granted with the purpose of financing the construction of real estate property, which will entail a more beneficial treatment in relation with the compliance of current prudential regulations applicable to local financial entities, including non-payment risk minimum previsions, fractioning credit risk and provisions related to banking minimum capital requirements.

In order to be regarded as “Preferred B” guarantees, the above mentioned guarantee trusts must comply with the following prerequisites:

(i) that the real estate owner assigns its property and all the rights and assets resulting from the project and marketing to the real estate guarantee trust;

(ii) that the proceeds obtained from the commercialization of the real estate property are used for the partial or total reimbursement of the borrower’s obligations under the trust;

(iii) that the bank acting as lender is not also acting as trustee;

(iv) that the trustee has sufficient power to control the real estate property, including the authority to remove the individuals or companies in charge of the construction and selling activities;

(v) that the fiduciary assets are free of any lien or charge;

(vi) that, in the event of default of the borrower, the lending bank has a seniority payment preference in relation to other beneficiaries in the trust;

(vii) that the real estate owner has consented that, in case of default, the fiduciary can dispose of the assets and transfer them to the purchaser without any restriction; and

(viii) that the promissory sales contracts (boletos de compraventa) of the assets entered into in connection with the trust property set forth that the real state property has been assigned to the trust.

In that context, Central Bank risk weight charts added four new specific categories related to this sort of financing in order to determine the risk weight minimum capital requirements. This new categories differentiate those facilities which are applied to residential purposes from those used for other purposes; applying in the first case a weight of 50% when the financial assistance has a maturity period not exceeding 75% of the construction term of the real estate project and a weight of 100% when it exceeds said maturity period; and in the second case a weight of 50% when the financial assistance has a maturity period not exceeding 75% of the construction term of the real estate project and a weight of 100% when it exceeds said maturity period.

This new Central Bank directives are focused on encouraging the employment of this sort of guarantees in the context of real estate developments through the lessening of the applicable prudential regulations.