June 21, 2000
Gary Rice, Esq.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, N.Y. 10017-3954
Dear Mr. Rice:
I am writing in response to your letter of April 17, 2000 in which you ask whether certain repurchase agreements (the "Agreement" or "Agreements") that the New York Branch of Bayerische Hypo -und Vereinsbank AG (the "New York Branch") contemplates entering into are considered "repurchase agreements" as that term is used in Section 618-a(2)(d) of the New York Banking Law (the "Banking Law"). As is more fully explained in your letter, the New York Branch expects to sell certain securities to various municipalities (each a "Buyer") that will purchase the securities from the proceeds of public bond issues. However, the sale of the securities will be subject to an agreement to repurchase them.
While the repurchase terms of the Agreements will reflect the fact that the parties intend that the purchase of the securities by the Buyer will be deemed an outright sale and transfer of ownership of the securities to the Buyer, the Agreements must be accounted for as secured loans on the books of the New York Branch, as you explain in your correspondence of May 25, 2000. Moreover, in the event that any such Agreements are deemed to be loans, the terms of the Agreements will provide that the New York Branch, as seller, shall have been deemed to have pledged to the Buyer, as security for the performance by the Seller of its obligations under each Agreement, and shall be deemed to have granted to the Buyer a security interest in, all of the purchased securities and all income thereon and other proceeds thereof which would be seen as collateral for the loan of the funds to the New York Branch.
As you represent, the type of securities that will be the subject of the Agreements will be limited to debt securities that are acceptable to, and highly rated by, rating agencies, which securities will be marked-to-market on a daily basis. It is expected that they will include U.S. Treasury securities, OECD government securities, agency debentures, GNMA and agency mortgaged-backed securities, and highly rated commercial paper. The Agreements will have a maximum term of three years. Nevertheless, during that term, the Buyer may cause the repurchase of the securities with two days notice if the funds are needed for their intended purpose.
In connection with providing a rating for the bonds, the rating agencies seek assurances that, in the event that the Superintendent of Banks takes possession of, and liquidates the New York Branch pursuant to Section 606 of the Banking Law, a Buyer will be able to terminate an Agreement and sell the securities without being subject to the automatic stay provisions that are triggered under Section 619 of the Banking Law. Along that line of inquiry, you seek confirmation from the Banking Department that the Agreements fit within the definition of a qualified financial contract ("QFC") pursuant to Section 618-a(2)(e) of the Banking Law, which QFCs are free from the automatic stay provisions that arise under Section 619 of the Banking Law when the Superintendent takes possession of, and liquidates a branch or agency of a foreign bank. Based on the information that you have supplied with respect to the Agreements contemplated here, in our opinion they fall within the definition of a QFC under Section 618-a (2)(e) of the Banking Law, in that they are repurchase agreements and they will be recorded on the books of the New York Branch.
Since the Agreements meet with the definition of a QFC as defined under Section 618-a (2)(e), it appears that in accordance with Banking Law Section 618-a (2)(d), a Buyer under the proposed Agreements, as a party to a QFC with the New York Branch, which party has a perfected security interest in collateral, or other valid lien or security interest in collateral enforceable against third parties pursuant to a security arrangement related to the QFC, upon repudiation or termination of that QFC in accordance with its terms, may apply such collateral in satisfaction of any claims secured by the collateral, subject to certain specified limitations described in Section 618-a (2)(d). Accordingly, in the event that the Superintendent of Banks takes possession of, or liquidates the New York Branch pursuant to Section 606 of the Banking Law, the Department is of the opinion that the Buyer may retain and liquidate the collateral pledged to it by the New York Branch free from the automatic stay provisions of Section 619 of the Banking Law.
I trust that this letter is responsive to your inquiry. If you have any questions I can be reached at (212) 618-6542.
Very truly yours,
Christine R. Cardi
 Bond(s) proceeds are invested by the Buyer until such time as they are needed for the purpose for which the bond(s) was issued.
 A Qualified Financial Contract, as defined in Section 618-a (2)(e) of the Banking Law, includes securities agreements, repurchase agreements and similar agreements, any combination of those agreements and any master agreement for such agreements, provided that such agreements are recorded in the books of the banking organization, in this case the New York Branch, or documentary evidence of such an agreement or agreements is provided.
 The collateral at issue here is the purchased securities.