Submitted by lushenejj on

RE: RCW 21.20.310 - Exempt Securities That Are Guaranteed

Question Presented:

What qualifies as the "guarantee" of an exempt security?

Statutes:

RCW 21.20.310(1) through .310(7) lists certain types of exempt securities, including securities that are "guaranteed" by banks, domestic and foreign governments, insurance companies, credit unions, savings and loan associations, public utilities and common carriers.

RCW 21.20.005(4) defines "guaranteed" to mean "guaranteed as to payment of principal, interest or dividends."

Discussion:

The Administrator has determined that an exempt security is "guaranteed" within the meaning of RCW 21.20.310 if the guarantee satisfies the following conditions:

  1. The guarantor makes an unconditional promise to pay the security holders;
  2. The term of the guarantee is concurrent with the term of the underlying security;
  3. The guarantor's promise to pay constitutes an irrevocable commitment to pay the security holders;
  4. The promise to pay represents a direct obligation from the guarantor to the security holders; and
  5. The guarantor's promise to pay is not available to the issuer's creditors and is not subject to an issuer's bankruptcy estate.

Conclusion:

A guarantee that satisfies the above conditions will generally qualify as a "guarantee" of an exempt security.

Adopted: January 1, 1991
Replaces: Statements of Policy 81-7 and 81-8
Jack L. Beyers, Securities Administrator
Prepared by: Janet G. McKinney, Securities Examiner