Indexed funding agreements are simply variable rate demand instruments issued and backed by the general account of the issuing insurance company. As outlined in the SEC's Rule 2a-7's Miscellaneous Debt Instruments, Indexed Funding Agreements are considered to have a maturity for purposes of Rule 2a-7 equal to the period remaining until the next readjustment of the interest rate, provided that the principal amount of the face of the instrument is scheduled to be paid in 397 calendar days of less. Indexed Funding Agreements' Put Option (Demand) is covered by Rule 2a-7's definition of an "Unconditional Put" or "Unconditional Demand Feature" that details how a Demand Instrument can be considered an Eligible Security either through a guarantee or through the Requisite NRSOs in one of the two highest rating categories for long-term debt obligations.
Brentwood's leading position in the placement of IFAs, currently $6 billion outstanding, is a direct result of our ability to facilitate the entrance of both new issuers (i.e. MetLife), and new end users into the marketplace. Our emphasis in equally servicing the issuers' underwriting needs with the end users' contractual and risk management needs has resulted in Brentwood generally having "first-look" on new capacity from issuers and "last-look" on competitive bidding situations from a majority of our clients.
The major life insurance companies issuing this product offer the following provisions which are required for Money Market Funds to comply with SEC Rule 2a-7:
• Rate resets monthly or quarterly
• Interest paid monthly or quarterly
• Index based on 30 day commercial paper, 1-month or 3-month LIBOR
• Maturities are 397 days or less with a 7 day, 30 day, 90 day, or in some cases 180 day put provision
Although most of these products offer a put provision, most investment funds have never exercised this option. The put is only in place to comply with Rule 2a-7. The funds use IFAs as a core holding and are purchased for yield enhancement over the long-term. In fact, most funds still use these products in their portfolios since their original purchases 2-7 years ago. IFAs are typically part of a fund's 10% restriction in illiquid investments usually treated as the last tier of liquidity within the portfolio. Contract amounts vary from $25 million to $500 million. If an IFA utilizes a 7 day put, it is classified as a liquid investment with a Rule 2a-7 fund. Investment funds that are not regulated by SEC's Rule 2a-7 utilize IFA's that incorporate maturities ranging from one year to five years with no put demand feature.