ISDA(R)
INTERNATIONAL SWAPS AND DERIVATIVES ASSOCIATION, INC.
CREDIT SUPPORT ANNEX
to the Schedule to the
ISDA MASTER AGREEMENT
dated as of December 8, 2006
between
HSBC BANK USA, N.A. ("Party A")
and
U.S. BANK NATIONAL ASSOCIATION, NOT IN ITS INDIVIDUAL CAPACITY BUT SOLELY IN ITS CAPACITY AS
SUPPLEMENTAL INTEREST TRUST TRUSTEE FOR THE BENEFIT OF THE
RAAC SERIES 2006-SP4 SUPPLEMENTAL INTEREST TRUST ("Party B")
This Annex supplements, forms part of, and is subject to, the ISDA Master Agreement referred to above
(this "Agreement"), is part of its Schedule and is a Credit Support Document under this Agreement with
respect to Party A.
Accordingly, the parties agree as follows:
(1) PARAGRAPHS 1 - 12. INCORPORATION
Paragraphs 1 through 12 inclusive of the ISDA Credit Support Annex (Bilateral Form) (ISDA Agreements
Subject to New York Law Only) published in 1994 by the International Swaps and Derivatives Association,
Inc. are incorporated herein by reference and made a part hereof:
PARAGRAPH 13. ELECTIONS AND VARIABLES
(a) SECURITY INTEREST FOR "OBLIGATIONS". The term "OBLIGATIONS" as used in this Annex includes no
additional obligations of Secured Party and, for purposes of the definition of Obligations in
Paragraph 12, includes no additional obligations of Pledgor.
(b) CREDIT SUPPORT OBLIGATIONS.
(i) DELIVERY AMOUNT, RETURN AMOUNT AND CREDIT SUPPORT AMOUNT.
(A) "DELIVERY AMOUNT" has the meaning specified in Paragraph 3(a) except that the
words "upon a demand made by the Transferee on or promptly following a Valuation Date" shall be
deleted and replaced by the words "on each Valuation Date".
(B) "RETURN AMOUNT" has the meaning specified in Paragraph 3(b).
(C) "CREDIT SUPPORT AMOUNT" means, for any Valuation Date, an amount equal to (x)
the Amount required under Paragraph 13(p) (in the case of a Ratings Event
relating to an action taken by S&P); or (y) the Amount required under
Paragraph 13(q) (in the case of a Ratings Event relating to an action taken by
Moody's) or (z) Party B's Exposure under the Agreement to which this Annex
relates (in the case of a Ratings Event relating to an action taken by Fitch),
in each case as calculated on a weekly basis by the Valuation Agent. The
Credit Support Amount shall be calculated by reference to the provisions set
forth in this Annex which would result in Party A transferring the greatest
amount of Eligible Credit Support to Party B.
(ii) ELIGIBLE COLLATERAL. The following items will qualify as "ELIGIBLE COLLATERAL":
Valuation Moody's First Moody's Second
Percentage:* Trigger Event Trigger Event S&P Fitch
(A) Cash: US Dollars in 100% 100% 100% 100%
depository account form.
(B) U.S. Treasury Securities: negotiable debt 100%% 100% 98.6% 99%
obligations issued by the U.S. Treasury
Department ("Treasuries") having a
remaining maturity of up to and not more
than 1 year.
(C) Treasuries having a remaining maturity of 100% 99% (0-1yr) 90.3% 98%
greater than 1 year but not more than 10 97%(1-5yr)
years. 94% (5-10yr)
(D) Treasuries having a remaining maturity of 100% 89%(10-20yr) 84.6% 97%
greater than 10 years 87% (>20yr)
(E) Agency Securities: negotiable debt 100% 99% 98.1% 95%
obligations of the Federal National
Mortgage Association (FNMA), Federal Home
Loan Mortgage Corporation (FHLMC), Federal
Home Loan Banks (FHLB), Federal Farm Credit
Banks (FFCB), Student Loan Marketing
Association (SLMA), Tennessee Valley
Authority (TVA) (collectively, "Agency
Securities") having a remaining maturity of
not more than 1 year.
(F) Agency Securities having a remaining 100% 98% (0-1yr) 92.6% 92%
maturity of greater than 1 year but not 96% (1-5yr)
more than 5 years.
(G) Agency Securities having a remaining 100% 93% 87.4% 88%
maturity of greater than 5 years but not
more than 10 years.
(H) Agency Securities having a remaining 100% 88% 81.6% 82%
maturity of greater than 10 years but not
more than 20 years.
(I) Agency Securities having a remaining 100% 86% 76.0% 82%
maturity of greater than 20 years but not
more than 30 years.
(J) FHLMC Certificates. Mortgage participation 81.9% 81.9% 86.4% 82%
certificates issued by FHLMC evidencing
undivided interests or participations in
pools of first lien conventional or FHA/VA
residential mortgages or deeds of trust,
guaranteed by FHLMC, and having a remaining
maturity of not more than 30 years.
(K) FNMA Certificates. Mortgage-backed 81.9% 81.9% 86.4% 82%
pass-through certificates issued by FNMA
evidencing undivided interests in pools of
first lien mortgages or deeds of trust on
residential properties, guaranteed by FNMA,
having a remaining maturity of not more
than 30 years.
(L) GNMA Certificates. Mortgage-backed 81.9% 81.9% 86.4% 82%
pass-through certificates issued by private
entities, evidencing undivided interests in
pools of first lien mortgages or deeds of
trust on single family residences,
guaranteed by the Government National
Mortgage Association (GNMA) with the full
faith and credit of the United States, and
having a remaining maturity of not more
than 30 years.
(M) Commercial Paper. Commercial Paper with a 80% 80% 99.0% 99%
rating of at least P-1 by Moody's, at least
F-1 by Fitch and at least A-1+ by S&P and
having a remaining maturity of not more
than 30 days.
(N) Other. Other items of Credit Support % to be % to be % to be % to be
approved by each applicable rating agency determined determined determined determined
with such valuation percentages as
determined by each applicable rating agency.
* The Valuation Percentage shall equal the percentage specified under such Rating Agency's name above.
If the Class [ ] Notes are rated by more than one Rating Agency specified above and a Ratings Event has
occurred with respect to more than one Rating Agency, the Valuation Percentage shall equal the lowest of
the applicable percentages specified above.
(iii) OTHER ELIGIBLE SUPPORT. Not applicable.
(iv) THRESHOLDS.
(A) "INDEPENDENT AMOUNT" means for Pledgor: zero.
"INDEPENDENT AMOUNT" means for Secured Party: zero
(B) "THRESHOLD" means for Pledgor: Infinity; provided that for so long as Party A is above the
Moody's First Trigger Required Ratings and either (i) Party A has had been below the
Moody's First Trigger Required Ratings since this Annex was executed or (ii) at least
30 Local Business Days have elapsed since the last time Party A had been below the
Moody's First Trigger Required Ratings, the Threshold with respect to Party A shall be
zero; further, provided, if a Ratings Event has occurred and is continuing pursuant to
Part 5(f) of the Agreement, the threshold shall be zero in the event Party A fails to
assign all of its rights and obligations under the Agreement on or before the thirtieth
(30) day after the date of a Ratings Event (as described in [Part 5(f)] of the
Schedule) continues to exist.
(C) "MINIMUM TRANSFER AMOUNT" is $100,000 for any Delivery Amount of Pledgor, unless the Pledgor is
a Defaulting Party, in which case it is zero, and $100,000 for any Return Amount of
the Secured Party, unless the Secured Party is a Defaulting Party, in which case it is
zero.
(D) ROUNDING: The Delivery Amount will be rounded up to the nearest integral multiple of $1,000,
and the Return Amount will be rounded down to the nearest integral multiple of $1,000.
(c) VALUATION AND TIMING.
(i) "VALUATION AGENT" means Party A; provided, however, that if an Event of Default shall
have occurred with respect to which Party A is the Defaulting Party, Party B shall have
the right to designate as Valuation Agent an independent party, reasonably acceptable
to Party A, the cost for which shall be borne by Party A. All calculations by the
Valuation Agent must be made in accordance with standard market practice, including, in
the event of a dispute as to the Value of any Eligible Credit Support or Posted Credit
Support, by making reference to quotations received by the Valuation Agent from one or
more Pricing Sources.
(ii) "VALUATION DATE" means the first Local Business Day of each week.
(iii) "VALUATION TIME" means the close of business in the city in which the Valuation Agent
is located on the Local Business Day before the Valuation Date or date of calculation,
as applicable; provided that the calculations of Value and Exposure will be made as of
approximately the same time on the same date.
(iv) "NOTIFICATION TIME" means 10:00 a.m., New York time, on a Local Business Day.
(d) CONDITIONS PRECEDENT AND SECURED PARTY'S RIGHTS AND REMEDIES. No Specified Conditions apply.
(e) SUBSTITUTION.
(i) "SUBSTITUTION DATE" has the meaning specified in Paragraph 4(d)(ii).
(II) CONSENT. The Pledgor is not required to obtain the Secured Party's consent for any substitution
pursuant to Paragraph 4(d).
(f) DISPUTE RESOLUTION.
(i) "RESOLUTION TIME" means 1:00 p.m., New York time, on the Local Business Day following
the date on which the notice is given that gives rise to a dispute under Paragraph 5.
(ii) VALUE. For the purpose of Paragraphs 5(i)(C) and 5(ii), the Value of Posted Credit
Support other than Cash will be calculated based upon the mid-point between the bid and
offered purchase rates or prices for that Posted Credit Support as reported on the
Bloomberg electronic service as of the Resolution Time, or if unavailable, as quoted to
the Valuation Agent as of the Resolution Time by a dealer in that Posted Credit Support
of recognized standing selected in good faith by the Valuation Agent, which calculation
shall include any unpaid interest on that Posted Credit Support to the extent it is the
established practice in the relevant market.
(iii) ALTERNATIVE. The provisions of Paragraph 5 will apply.
(g) HOLDING AND USING POSTED COLLATERAL.
(i) ELIGIBILITY TO HOLD POSTED COLLATERAL; CUSTODIANS. Secured Party will not be entitled
to hold Posted Collateral itself, and instead the Secured Party will be entitled to
hold Posted Collateral through the Indenture Trustee which Posted Collateral (i) shall
not be commingled or used with any other asset held by the Indenture Trustee but shall
be held in a separate account for this purpose only and (ii) shall not be transferred
to any other person or entity but Party A pursuant to the provisions herein except (x)
in any case contemplated by Paragraph 8(a) of this Annex with respect to Party A or (y)
as directed by Party A.
(ii) USE OF POSTED COLLATERAL. The provisions of Paragraph 6(c) will not apply to Secured
Party and without prejudice to Secured Party's rights under Paragraph 8 of the Credit
Support Annex, Secured Party will not take any action specified in such Section 6(c).
(h) INTEREST AMOUNT.
(i) INTEREST RATE. The "INTEREST RATE" means, for any day, the rate of interest actually
earned for that day on Eligible Collateral constituting cash under Paragraph
13(b)(ii)(A).
(ii) TRANSFER OF INTEREST AMOUNT. The Transfer of the Interest Amount, if any, will be made
on the first Local Business Day of each calendar month and on any Local Business Day
that Posted Collateral in the form of Cash is Transferred to the Pledgor pursuant to
Paragraph 3(b). Any Interest Amount paid by Party B to Party A hereunder with respect
to cash collateral posted by Party A shall not exceed the actual amount of interest
received by Party B with respect thereto.
(iii) ALTERNATIVE TO INTEREST AMOUNT. The provisions of Paragraph 6(d)(ii) will apply.
(i) ADDITIONAL REPRESENTATION(S). Not applicable.
(j) OTHER ELIGIBLE SUPPORT AND OTHER POSTED SUPPORT. Not applicable.
(k) DEMANDS AND NOTICES. All demands, specifications and notices under this Annex will be made to a
party as follows unless otherwise specified from time to time by that party for purposes of this
Annex in a written notice given to the other party:
TO PLEDGOR:
As set forth in the Schedule.
TO SECURED PARTY:
As set forth in the Schedule.
(l) ADDRESSES FOR TRANSFERS.
(i) For each Transfer hereunder to Pledgor:
To be provided in written instructions.
(ii) For each Transfer hereunder to Secured Party, instructions will be provided by Secured
Party for that specific Transfer.
(m) AGREEMENT AS TO SINGLE SECURED PARTY AND PLEDGOR. Party A and Party B agree that,
notwithstanding anything to the contrary in the recital of this Annex, Paragraph 1(b) or
Paragraph 2 of the definitions in Paragraph 12, (a) the term "Secured Party" as used in this
Annex means only Party B, (b) the term "Pledgor" as used in this Annex means only Party A, (c)
only Party A makes the pledge and grant in Paragraph 2, the acknowledgment in the final sentence
of Paragraph 8(a) and the representations in Paragraph 9 and (d) only Party A shall be required
to post Eligible Credit Support hereunder. Party A also agrees that it shall pay all reasonable
costs of transferring Eligible Credit Support required to be delivered by Party A to Party B
hereunder.
(n) NO GROSS UP. The Secured Party will have no obligation to pay any additional amount of the kind
specified in Section 2(d)(i)(4) of the Agreement with respect to any Interest Amounts or
Distributions.
(o) ELIMINATION OF DEMAND REQUIREMENTS. The parties agree that the phrase "upon a demand made by
the Secured Party" shall be deleted from Paragraph 3(a) of this Credit Support Annex.
(p) S&P CREDIT SUPPORT AMOUNT. With respect to a Ratings Event relating to an action taken by S&P,
the "CREDIT SUPPORT AMOUNT" shall mean with respect to a Pledgor on a Valuation Date the sum of :
(i) the greater of MTM and $0, plus
(ii) VB
Where:
"MTM" means Secured Party's Exposure;
"VB" means the Notional Amount (as defined in the Confirmation for each outstanding Transaction
under this Agreement) times the relevant percentage set out in Table A below:
TABLE A
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VOLATILITY BUFFER
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------------------------------ ---------------------------- ----------------------------- ----------------------------
Counterparty Less than 5 years to Less than 10 years, but Greater than 10 years to
more than 5 years to
Termination Date of the Termination Date of the Termination Date of the
Transaction. Transaction. Transaction.
------------------------------ ---------------------------- ----------------------------- ----------------------------
------------------------------ ---------------------------- ----------------------------- ----------------------------
The rating by S&P of Party 3.25% 4.00% 4.75%
A's long-term unsecured,
unsubordinated obligations
is at least equal to "A"
------------------------------ ---------------------------- ----------------------------- ----------------------------
------------------------------ ---------------------------- ----------------------------- ----------------------------
The rating by S&P of Party 4.00% 5.00% 6.25%
A's long-term unsecured,
unsubordinated obligations
is equal to "A-"
------------------------------ ---------------------------- ----------------------------- ----------------------------
------------------------------ ---------------------------- ----------------------------- ----------------------------
The rating by S&P of Party 4.50% 6.75% 7.50%
A's long-term unsecured,
unsubordinated obligations
is equal to or less than
"BB+"
------------------------------ ---------------------------- ----------------------------- ----------------------------
EXPOSURE.
The Parties agree that in the event of a Ratings Event relating to an action taken by S&P, the Valuation
Agent shall verify its calculation of the Secured Party's Exposure on a quarterly basis by seeking two
quotations from Reference Market-makers at the end of each month. If 2 Reference Market-makers are not
available to provide a quotation, then fewer than 2 Reference Market-makers may be used for such
purpose. If no Reference Market-makers are available, then the Valuation Agent's estimates at mid-market
will be used. The Valuation Agent may not obtain the quotations referred to above from the same person
in excess of four times during any 12 month period. Where more than 1 quotation is obtained, the
quotation representing the greatest amount of Exposure shall be used by the Valuation Agent. In the
event the verification procedures set forth above indicate that there is a deficiency in the amount of
Eligible Collateral that has been posted to the Secured Party, the Pledgor shall post the amount of
Eligible Collateral necessary to cure such deficiency to the Secured Party within three Local Business
Days.
(q) MOODY'S RATINGS CRITERIA
"Ratings Criteria" means, the criteria used by Moody's ("Moody's Criteria") for the purposes of
determining the amount of Eligible Credit Support Party A is required to transfer at any time
when the Threshold with respect to Party A is zero.
MOODY'S CRITERIA:
MOODY'S CREDIT SUPPORT AMOUNT.* With respect to a Ratings Event relating to an action taken by
Moody's, the "CREDIT SUPPORT AMOUNT" shall mean with respect to a Pledgor on a Valuation Date
the sum of :
(i) With respect to a Moody's First Trigger Event:
(A) the greater of the Secured Party's Exposure and $0, plus
(B) Notional Amount times the relevant percentage set out in Table B below.
(ii) With respect to a Moody's Second Trigger Event:
(A) the greater of the Secured Party's Exposure, $0 or the amount owed by Party A
on the next Payment Date (as such term is defined in the Confirmation for each outstanding
Transaction under this Agreement), plus
(B) the lesser of (i) Party A's estimate of the change in the mid-market value of
the Transaction resulting from a one basis point change in the swap curve times 25 or (ii)
Notional Amount times the relevant percentage set out in Table B below.
* To the extent that both the Moody's Credit Support Amount and the S&P Credit Support Amount
apply, the greater of the two amounts shall be the Credit Support Amount.
TABLE B
------------------------------ --------------------------------- -------------------------------------------
WEIGHTED AVERAGE LIFE OF MOODY'S FIRST TRIGGER EVENT HAS MOODY'S SECOND TRIGGER EVENT HAS OCCURRED
HEDGE IN YEARS OCCURRED
------------------------------ --------------------------------- -------------------------------------------
------------------------------ --------------------------------- -------------------------------------------
1 0.25% 0.60%
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2 0.50% 1.20%
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3 0.70% 1.70%
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4 1.00% 2.30%
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5 1.20% 2.80%
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6 1.40% 3.30%
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7 1.60% 3.80%
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8 1.80% 4.30%
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9 2.00% 4.80%
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10 2.20% 5.30%
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11 2.30% 5.60%
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12 2.50% 6.00%
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13 2.70% 6.40%
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14 2.80% 6.80%
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15 3.00% 7.20%
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16 3.20% 7.60%
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17 3.30% 7.90%
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18 3.50% 8.30%
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19 3.60% 8.60%
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20 3.70% 9.00%
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21 3.90% 9.00%
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22-30 4.00% 9.00%
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IN WITNESS WHEREOF the parties have executed this Credit Support Annex as of the date hereof.
HSBC BANK USA, N.A.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Senior Vice President
By: ______________________________
Name:
Title:
U.S. BANK NATIONAL ASSOCIATION, NOT IN ITS INDIVIDUAL CAPACITY BUT SOLELY IN ITS CAPACITY AS SUPPLEMENTAL
INTEREST TRUST TRUSTEE FOR THE BENEFIT OF THE RAAC SERIES 2006-SP4 SUPPLEMENTAL INTEREST TRUST
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇-▇▇▇▇
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇-▇▇▇▇
Title: Vice President