53,,
6WRUDJHRI/LTXLG+LJK/HYHO
5DGLRDFWLYH:DVWH
DW6HOODILHOG
$Q([DPLQDWLRQRI
6DIHW\'RFXPHQWDWLRQ
)-7XUYH\ DQG&+RQH
'HFHPEHU
&RQVXOWDQWIRUPHU$VVLVWDQW&KLHI([HFXWLYH53,,
0DQDJHU1XFOHDU6DIHW\53,,
&217(176
([HFXWLYH6XPPDU\
,QWURGXFWLRQ
/LTXLG+LJK/HYHO:DVWHDW6HOODILHOG
3URGXFWLRQDQG6WRUDJHRI+LJK/HYHO:DVWH+/:
'HVFULSWLRQRI+$67V
&RQWHQWVRI+$67V
&RQWLQXHG2SHUDWLRQ6DIHW\5HSRUW&265
6SHFLILF6DIHW\,VVXHV
/RVVRI&RROLQJ
&KHPLFDO5HDFWLRQV
+\GURJHQ%XUQLQJ([SORVLRQV
5HG2LO5HDFWLRQV
&RQGLWLRQRI8QGHUJURXQG&RROLQJ:DWHU3LSHV
%UHDNWKURXJKRI+LJKO\$FWLYH/LTXRULQWR&RROLQJ6\VWHP
&ULWLFDOLW\
([WHUQDO(YHQWV
(DUWKTXDNHV
$LUFUDIW&UDVK
/RVVRI&RROLQJWRD+$67GXHWRD&UDQH&ROOLVLRQ
*DV&ORXG([SORVLRQV
5HOLDELOLW\'DWDEDVH
+XPDQ)DFWRUV
'RFXPHQW0DQDJHPHQW
7KLUG3DUW\$VVHVVPHQWRI&265
&RQFOXVLRQVDQG5HFRPPHQGDWLRQV
5HIHUHQFHV
6725$*(2)/,48,'+,*+/(9(/5$',2$&7,9(:$67($76(//$),(/'
$Q([DPLQDWLRQRI6DIHW\'RFXPHQWDWLRQ
(;(&87,9(6800$5<
/LTXLG KLJKOHYHO UDGLRDFWLYH ZDVWH DULVHV IURP WKH UHSURFHVVLQJ RI VSHQW QXFOHDU IXHO DW 6HOODILHOG
7KH ZDVWH LV KHOG LQ WDQNV NQRZQ DV +LJKO\ $FWLYH 6WRUDJH 7DQNV +$67V 7KH UDGLRDFWLYH
LQYHQWRU\RID+$67LVH[WUHPHO\ODUJHDQGGHFD\VDZD\YHU\VORZO\7KHGHFD\SURFHVVSURGXFHV
KHDWDQGVRWKHWDQNVUHTXLUHFRQWLQXRXVFRROLQJWRSUHYHQWHYDSRUDWLRQDQGXOWLPDWHO\LQWKHFDVHRI
WKRVH WDQNV ZLWK WKH ODUJHU UDGLRDFWLYH LQYHQWRULHV ERLOLQJ DQG SRVVLEOH UHOHDVH WR WKH DWPRVSKHUH
7KHULVNRIDQDFFLGHQWDOUHOHDVHRIUDGLRDFWLYLW\WRWKHDWPRVSKHUHKDVEHHQDPDWWHURIFRQFHUQLQ
,UHODQGIRUVRPHWLPH
)ROORZLQJ D UHTXHVW IURP WKH ,ULVK DXWKRULWLHV %ULWLVK 1XFOHDU )XHOV SOF %1)/ DJUHHG WKDW WZR
UHSUHVHQWDWLYHVRIWKH5DGLRORJLFDO3URWHFWLRQ,QVWLWXWHRI,UHODQGFRXOGYLVLWWKHSODQWWRH[DPLQHWKH
ODWHVW VDIHW\ DQDO\VLV HQWLWOHG WKH &RQWLQXHG 2SHUDWLRQ 6DIHW\ 5HSRUW &265 DQG VXSSRUWLQJ
GRFXPHQWDWLRQUHODWLQJWRWKHRSHUDWLRQRIWKH+$67V
7KHSULQFLSDOREMHFWLYHVRIWKHH[DPLQDWLRQZHUHWR
œ
œ
œ
œ
GHWHUPLQHZKHWKHUWKH&265LQFOXGHVDOOVLJQLILFDQWKD]DUGV
HYDOXDWH WKH &265¶V FRQFOXVLRQV RQ WKH SUREDELOLW\ RI RFFXUUHQFH RI D QXPEHU RI DFFLGHQW
VFHQDULRV
GHWHUPLQHZKHWKHUFRQILGHQFHFDQEHSODFHGLQWKHUHOLDELOLW\GDWDEDVHXVHGLQWKH&265DQG
DVVHVVWKHVLJQLILFDQFHRIDQ\VKRUWFRPLQJV
DVVHVVWKHQHHGIRUIXUWKHULPSURYHPHQWVLQVDIHW\
%DVHGRQWKLVH[DPLQDWLRQWKHUHSRUWFRQFOXGHVWKDWWKHSUHVHQWULVNVRIDVHYHUHDFFLGHQWDVVRFLDWHG
ZLWKWKH+$67VDUHORZEXWWKDWWKH\FRXOGEHUHGXFHGIXUWKHUE\DWWHQWLRQWRWKHSRLQWVOLVWHGEHORZ
7KH UHSRUW DOVR HPSKDVLVHV WKH LQKHUHQW ULVNV DVVRFLDWHG ZLWK WKH VWRUDJH RI KLJKOHYHO UDGLRDFWLYH
ZDVWHLQOLTXLGIRUP7KHSURFHVV ZKLFKLVLQ SURJUHVVRI FRQYHUWLQJ WKH PDWHULDO WR DVDIHUVROLG
IRUPVKRXOGEHH[SHGLWHG$PRQJWKHVSHFLILFILQGLQJVZHUH
œ
œ
7KHULVNRIGDPDJHIURPDVHYHUHHDUWKTXDNHKDVQRWEHHQIXOO\ DQDO\VHG $OORWKHU PDMRU
DFFLGHQWVFHQDULRVDSSHDUWRKDYHEHHQFRQVLGHUHG
:KLOH WKH SUREDELOLW\ RI DQ DFFLGHQW LQYROYLQJ D VLJQLILFDQW UHOHDVH RI UDGLRDFWLYLW\ LV ORZ
FHUWDLQVDIHW\ZHDNQHVVHVZHUHLGHQWLILHG7KHVHLQFOXGH
WKHQHHGIRULPSURYHGGDWDRQWKHUHOLDELOLW\RIFRPSRQHQWVZKRVHSHUIRUPDQFHLPSLQJHV
RQ VDIHW\
DOWKRXJKWKHUHDUHDQXPEHURIDOWHUQDWLYHZDWHUVXSSOLHVIRUFRROLQJWKHWDQNVWKH\DUH
QRW IXOO\LQGHSHQGHQWRIHDFKRWKHU
WKHUH LV FXUUHQWO\ QR LQVWUXPHQWDWLRQ IRU GHWHFWLQJ SRVVLEOH K\GURJHQ EXLOGXS LQ WKH
+$67V
WKHODFNRIDSURJUDPPHIRUUDQGRPFKHFNLQJRISODQWSHUVRQQHOIRUDOFRKROGUXJDEXVH
WKH FRQVHTXHQFHV RI D YHU\ VHYHUHDFFLGHQWLI RQH GLG RFFXU KDYH QRW EHHQ DGHTXDWHO\
DVVHVVHG6XFKDQDVVHVVPHQWZRXOGDVVLVWHPHUJHQF\SODQQLQJ
%1)/LVDVNHGWRJLYHHDUO\DWWHQWLRQWRWKHVHPDWWHUV
,1752'8&7,21
/LTXLG KLJK OHYHO UDGLRDFWLYH ZDVWH DULVHV IURP WKH UHSURFHVVLQJ RI VSHQW QXFOHDU IXHO DW 6HOODILHOG
7KH ZDVWH LV KHOGLQ WDQNV NQRZQ DV +LJKO\ $FWLYH 6WRUDJH7DQNV +$67V %HFDXVH RI WKH ODUJH
DPRXQW RI KHDW SURGXFHG E\ UDGLRDFWLYH GHFD\ WKH WDQNV UHTXLUH FRQWLQXRXV FRROLQJ WR SUHYHQW
HYDSRUDWLRQDQGXOWLPDWHO\LQWKHFDVHRIWKRVHWDQNVZLWKWKHODUJHUUDGLRDFWLYHLQYHQWRULHVERLOLQJ
RI WKHLUFRQWHQWV
7KH SRWHQWLDO WKHUHIRUH H[LVWV IRU D UHOHDVH RI UDGLRDFWLYLW\ WR WKH HQYLURQPHQW HLWKHU DV D UHVXOW RI
IDLOXUHRIDWDQNLWVHOIIDLOXUHRIFRROLQJUHVXOWLQJLQERLOLQJRIFRQWHQWVRUDQH[SORVLRQ$QH[SORVLRQ
FRXOGLQSULQFLSOHRFFXUDVDUHVXOWRIDFKHPLFDOUHDFWLRQLQDWDQNRULIDVXIILFLHQWPDVVRIILVVLOH
ZHUHWREHLQWURGXFHGLQWRDWDQNLQHUURUIURPDFULWLFDOLW\DFFLGHQW
7KH ULVN DVVRFLDWHG ZLWK WKH VWRUDJH RI OLTXLG KLJK OHYHO ZDVWH DW 6HOODILHOG KDV EHHQ LGHQWLILHG DV
UHSUHVHQWLQJDVHULRXVWKUHDWIRU,UHODQG%HFDXVHRIWKLVWKHRSSRUWXQLW\KDGEHHQVRXJKWIRUVRPH
WLPH IRU VFUXWLQ\ E\ ,ULVK H[SHUWV RI GHWDLOHG GRFXPHQWDWLRQ LQFRUSRUDWLQJ DVVHVVPHQWV RI WKH ULVNV
DVVRFLDWHGZLWKVXFKVWRUDJHEXWWKLVKDGEHHQUHIXVHGE\%ULWLVK1XFOHDU)XHOVSOF%1)/RQWKH
JURXQGVRIFRPPHUFLDOFRQILGHQWLDOLW\
)ROORZLQJ VXVWDLQHG ,ULVK *RYHUQPHQW SUHVVXUH LQ %1)/ PRGLILHG WKLV VWDQFH DQG DJUHHG WR
JLYH 5DGLRORJLFDO 3URWHFWLRQ ,QVWLWXWH RI ,UHODQG 53,, SHUVRQQHO DFFHVV WR GRFXPHQWDWLRQ ZKLFK
PDNHVXSZKDWLVNQRZQDVWKH&RQWLQXHG2SHUDWLRQ6DIHW\5HSRUW&265VXEMHFWWRWKHFRQGLWLRQ
WKDWWKHGRFXPHQWDWLRQZDVH[DPLQHGDW6HOODILHOGDQGQRWUHPRYHGRUFRSLHG,QDSUHOLPLQDU\
YLVLWZDVPDGHWR6HOODILHOGWRDVVHVVWKHIHDVLELOLW\RIFDUU\LQJRXWDXVHIXOH[DPLQDWLRQRIWKH&265
7KHRXWFRPHRIWKHYLVLWZDVSRVLWLYHDQGDUUDQJHPHQWVZHUHPDGHIRUGHWDLOHGVFUXWLQ\RIWKH&265
LQHDUO\
7KLV VFUXWLQ\ LQYROYHG D YLVLW RYHU D WZRZHHN SHULRG )HEUXDU\ E\ WZR 53,,
UHSUHVHQWDWLYHVLQWKHSHUVRQVRIWKHDXWKRUVRIWKLVUHSRUW
7KHSULQFLSDOREMHFWLYHVRIWKHH[DPLQDWLRQFDUULHGRXWZHUHWR
œ
œ
œ
œ
GHWHUPLQHZKHWKHUWKH&265LQFOXGHVDOOVLJQLILFDQWKD]DUGV
HYDOXDWH WKH &265¶V FRQFOXVLRQV RQ WKH SUREDELOLW\ RI RFFXUUHQFH RI D QXPEHU RI DFFLGHQW
VFHQDULRV
GHWHUPLQH ZKHWKHU FRQILGHQFH FDQ EH SODFHG LQ WKH UHOLDELOLW\ GDWDEDVH XVHG LQ WKH &265 DQG
DVVHVVWKHVLJQLILFDQFHRIDQ\VKRUWFRPLQJV
DVVHVVWKHQHHGIRUIXUWKHULPSURYHPHQWVLQVDIHW\
/,48,'+,*+/(9(/:$67($76(//$),(/'
3URGXFWLRQDQG6WRUDJHRI+LJK/HYHO:DVWH+/:
7KH ZDVWHV SURGXFHG E\ WKH UHSURFHVVLQJ RI QXFOHDU IXHO LQ WKH 0DJQR[ DQG 7+253 UHSURFHVVLQJ
SODQWV DW 6HOODILHOG PD\ EH FRQYHQLHQWO\ FDWHJRUL]HG DV +LJK ,QWHUPHGLDWH RU /RZ /HYHO :DVWH
GHSHQGLQJ RQ WKHLU UDGLRWR[LFLW\ DQG KHDW JHQHUDWLQJ FKDUDFWHULVWLFV 2QO\ +/: LQ OLTXLG IRUP LV
VWRUHGLQWKH+$67VWKH,/:DQG//:DUHVWRUHGHOVHZKHUHRQWKH6HOODILHOGVLWH7KLV+/:OLTXLG
LVWKHUHVXOWRIWKHGLVVROXWLRQRIWKHVSHQWIXHOLQQLWULFDFLGDQGWKHVHSDUDWLRQE\VROYHQWH[WUDFWLRQ
RI SOXWRQLXPDQGXUDQLXP7KHOLTXLGLVGLVFKDUJHGWRDQHYDSRUDWRUZKHUHLWLVKLJKO\FRQFHQWUDWHG
RQH WRQQH RI VSHQW 0DJQR[ IXHO JLYHV ULVH WR VHYHQ FXELF PHWUHV RI GLOXWH OLTXLG ZKLFK E\
HYDSRUDWLRQLVUHGXFHGWRDERXWOLWUHVDQGVWRUHGLQ WKH +$67V7KLVOLTXLG FRQWDLQV DOPRVW JLJDEHFTXHUHOVSHUPLOOLOLWUHRIILVVLRQSURGXFWVRIZKLFKVRPHLVFDHVLXP7KHUDGLRDFWLYH
GHFD\RIWKHVHILVVLRQSURGXFWVJHQHUDWHVVLJQLILFDQWKHDWVHYHUDONLORZDWWVN:SHUFXELFPHWUH
7KH +$67V DUH GHVLJQHG WR KROG LQ VDIH VWRUDJH WKH KLJKO\ DFWLYH OLTXLG UDGLRDFWLYH ZDVWH SULRU WR
LQFRUSRUDWLRQLQJODVVYLWULILFDWLRQDQGORQJWHUPVWRUDJHRUGLVSRVDO7KHSURFHVVRISURGXFWLRQDQG
VWRUDJHRIWKLVZDVWHLV VKRZQ LQ )LJXUH 7KHILUVWHLJKW +$67V ZHUHFRPPLVVLRQHG LQDQG
VHTXHQWLDOO\ EURXJKW LQWR DFWLYH XVH EHWZHHQ DQG $OWKRXJK WKH ZDVWH ZDV NQRZQ WR
FRQWDLQ ORQJ OLYHG UDGLRWR[LF DQG FKHPRWR[LF VXEVWDQFHV WKHUH ZDV H[FHSW IRU VRPH OLPLWHG
YLWULILFDWLRQ WULDOV DW +DUZHOO LQ WKH V QR SODQ DW WKDW HDUO\ VWDJH IRU LWV ILQDO WUHDWPHQW DQG
GLVSRVDO ,Q RUGHUWKHUHIRUH WR DFFRPPRGDWH WKH LQFUHDVLQJ YROXPH RI ZDVWH D IXUWKHU +$67V
QRVZHUHEXLOWGXULQJWKHVDQGVDOORIZKLFKDUHVLPLODULQGHVLJQ7KHUHKDVEHHQ
DQHYROXWLRQLQWKHGHVLJQIURPWKHEHJLQQLQJVXFKWKDWWKHODWHU+$67VDUHPRUHVRSKLVWLFDWHG$OO
RI WKH+$67VDUHORFDWHGLQEXLOGLQJ%
$ SROLF\ RI NHHSLQJ RQH WDQN HPSW\ IRU HYHU\ WKUHH LQ XVH KDV DOZD\V EHHQ PDLQWDLQHG 7KLV LV WR
HQVXUHWKDWVKRXOGWKHUHEHDVHULRXVSUREOHPVXFKDVDOHDNWKHUHZRXOGEHVSDUHFDSDFLW\LQWRZKLFK
WKHFRQWHQWVRIWKHOHDNLQJ+$67VFRXOGEHWUDQVIHUUHG,QDYLWULILFDWLRQSODQWVWDUWHGWRFRQYHUW
WKHZDVWHIURPOLTXLGLQWRVROLGJODVV7KLVLVDPXFKVDIHUIRUPRIZDVWHIRUORQJWHUPVWRUDJH,Q
VWRUDJHFRROLQJRIYLWULILHGZDVWHLVDVVXUHGWKURXJKQDWXUDOFLUFXODWLRQRIDLUUDWKHUWKDQIRUFHGIORZ
RI OLTXLGFRRODQWXVLQJFRPSOH[HQJLQHHUHGV\VWHPVDVLVUHTXLUHGIRUWKHOLTXLGZDVWH
'HVFULSWLRQRI+$67V
(DFKRI+$67VKDVDZRUNLQJYROXPHRIP 7KH\DUHKRUL]RQWDOF\OLQGHUVZLWKGLVKHGHQGV
7KHRYHUDOOOHQJWKLVPDQGWKHGLDPHWHULVP+$67VKDYHDFRROLQJFDSDFLW\RI
N:SURYLGHGE\RQO\RQHFRROLQJFRLO+RZHYHUWKHPD[LPXPKHDWFRQWHQWLVW\SLFDOO\OHVVWKDQ
N:+$67VHDFKKDVWZRDGGLWLRQDOFRROLQJFRLOVQHYHUWKHOHVVWKHLUKHDWORDGLVDOVROHVVWKDQ
N:+$67VDUHYHUWLFDOF\OLQGHUVPHDVXULQJP[P(DFKKDVDZRUNLQJYROXPHRIP
WKHDFWXDOYROXPHLVP DQGLVILWWHGZLWKVHYHQFRROLQJFRLOVILYHKRUL]RQWDODQGWZRYHUWLFDO
7KHFRROLQJFDSDFLW\RIHDFKWDQNLVDERXWN:ZKLOHWKHDFWXDOORDGLQJLVW\SLFDOO\RQO\
N: $OO +$67V DUH ILWWHG ZLWK DJLWDWLRQ V\VWHPV WR SUHYHQW VHGLPHQWDWLRQ DQGRU SODWLQJ RXW RI
VXEVWDQFHVRQVXUIDFHV
7KH+$67VDUHKRXVHGLQWKLFNUHLQIRUFHGFRQFUHWHFHOOV7KH ZDOOV DQG URRIVRIWKH FHOOV UDQJH LQ
WKLFNQHVVIURPP±P7KHILUVW+$67VDUHKRXVHGWZRSHUFHOODQGWKHUHPDLQGHUVLQJO\
(DFKFHOOLVLQWHUQDOO\FODGZLWKVWDLQOHVVVWHHOWRDKHLJKWRIDIHZPHWUHVVRWKDWDQ\OHDNIURPDWDQN
ZRXOGEHFRQWDLQHG7KHFRQWHQWVRIDWDQNRUWKHVSLOODJHLQDFHOOFDQEHWUDQVIHUUHGWRWKHGHVLJQDWHG
VWDQGE\ WDQN XVLQJ QRUPDO YDFXXP OLIW PHWKRGV RU E\ VWHDP HMHFWRUV &RROLQJ ZDWHU WR WKH FRLOV LV
SURYLGHG E\ RQH RI WZR SXPSHG VXSSOLHV IURP RQH RI WZR FRROLQJ WRZHUV RU DOWHUQDWLYHO\ GLUHFWO\
IURPHLWKHURIWZRSUHVVXUL]HGULQJPDLQV6KRXOGDOORIWKHVHIDLOWKHQWKHUHLVDQHPHUJHQF\FRROLQJ
ZDWHU ULQJ PDLQ 7KHUH DUH DOVR RWKHU VRXUFHV RI FRROLQJ ZDWHU DQG PHDQV RI GLVWULEXWLRQ WR WKH
+$67V
7KHYHQWLODWLRQV\VWHPVLQWKHROGDQGWKHQHZHU+$67VSURYLGHDQHJDWLYHSUHVVXUHLQWKH+$67VVR
WKDWDQ\DLUOHDNZLOOEHLQWRUDWKHUWKDQRXWRIWKH+$67V7KH\DOVRHQVXUHWKDWDQ\JDVHV±PRVW
LPSRUWDQWO\ K\GURJHQ SURGXFHG E\ UDGLRO\VLV RU RWKHU SURFHVVHV ± RU DHURVROV ZLOO EH H[KDXVWHG WR
DWPRVSKHUHWKURXJK DSSURSULDWH GHFRQWDPLQDWLRQDQG ILOWHU V\VWHPV 7KH YHVVHO YHQWLODWLRQFOHDQXS
V\VWHPVILWWHGWRWKHQHZHU+$67VDUHPRUHVRSKLVWLFDWHGDQGIRUH[DPSOHLQFOXGHDQHOHFWURVWDWLF
SUHFLSLWDWRU 7KHUH KDV EHHQ QR HYLGHQFH RI WKH JHQHUDWLRQ RI VLJQLILFDQW OHYHOV RI K\GURJHQ ,I WKH
H[KDXVW IDQV IDLO LW LV FODLPHG WKDW WKH VOLJKW SUHVVXUH GLIIHUHQWLDO ZKLFK H[LVWV EHWZHHQ WDQN DQG
DWPRVSKHUHZLOOSURPRWHVXIILFLHQWQDWXUDOYHQWLODWLRQWRSUHYHQWDEXLOGXSRIK\GURJHQ7KLVLVVXHLV
GLVFXVVHGLQIXUWKHUGHWDLOXQGHU &KHPLFDO5HDFWLRQV
&RQWHQWVRI+$67V
:KHQILUVWUHPRYHGIURPDUHDFWRUVSHQWQXFOHDUIXHOLVVWRUHGDWWKHUHDFWRUVLWHWRDOORZWKHLRGLQH
ZKLFKKDVDKDOIOLIHRIGD\VWRGHFD\7KLVQRWRQO\UHGXFHVWKHKD]DUGGXULQJWKHWUDQVSRUWDQG
UHSURFHVVLQJRIWKHVSHQWIXHOEXWDOVRPHDQVWKDWWKH+$67VLQWRZKLFKWKHOLTXLGZDVWHLVGLVFKDUJHG
DIWHUWKHH[WUDFWLRQRIWKHSOXWRQLXPDQGXUDQLXPFRQWDLQRQO\ORQJOLYHGUDGLRLVRWRSHV7KHLVRWRSLF
LQYHQWRU\RIDIUHVKO\ILOOHG+$677DEOHGLIIHUVIURPWKDWRIDUHDFWRULQWKDWWKHUHDUHQRVKRUW
OLYHG UDGLRLVRWRSHV 1RWH WKDW LQ 7DEOH O WKH DFWLYLW\ LV H[SUHVVHG LQ EHFTXHUHOV SHU PLOOLOLWUH WR
FDOFXODWHWKHWRWDODFWLYLW\RIDQ\SDUWLFXODULVRWRSHLQDW\SLFDOO\ILOOHGODUJHWDQNWKHJLYHQVSHFLILF
DFWLYLW\VKRXOGEHPXOWLSOLHGE\ WKHYROXPHLQWKHWDQNLVDVVXPHGWREHFXELFPHWUHV
7KHWRWDOYROXPHRIOLTXLGZDVWHVWRUHGLQWKH+$67VUHDFKHGDSHDNYDOXHRIP LQ2YHU
WKH UHPDLQGHU RI WKH SHULRG WR LW UHPDLQHG SUDFWLFDOO\ FRQVWDQW DW VOLJKWO\ OHVV WKDQ WKLV
YDOXH%\WKHHQGRIWKHWRWDOYROXPHKDGGHFUHDVHGWRDVOLJKWO\ORZHUYDOXHWKDQDWWKHHQGRI
7KHDFWLYLW\RIVRPHRIWKHPRUHLPSRUWDQWLVRWRSHVIURPWKHVDIHW\SRLQWRIYLHZLVJLYHQLQ
7DEOH 7RJHWKHU FDHVLXP FDHVLXP DQG VWURQWLXP DFFRXQW IRU WKH ODUJHVW TXDQWLW\ RI
UDGLRORJLFDOO\KDUPIXOVXEVWDQFHVLQWKH+$67V7KHWDEOHDOVRFRPSDUHVWKHLQYHQWRU\RIZDVWHZLWK
WKHLVRWRSLFUHOHDVHVIURPWKH1RUHDFWRUDW&KHUQRE\O
,W LV FOHDU WKDW D KXJH SRWHQWLDO IRU GDPDJH WR WKH SXEOLF DQG WR WKH HQYLURQPHQW LV SUHVHQW 7KH
GDPDJH SRWHQWLDO RI WKH ZDVWH LQ WKH ROGHU +$67V LV FRQVLGHUDEO\ OHVV WKDQ LQ WKH RWKHUV 7KLV LV
EHFDXVHRIWKHGLIIHUHQFHLQWKHDJHDQGYROXPHRIWKHZDVWHDQGEHFDXVHWKHKHDWJHQHUDWHGE\WKH
FRQWHQWVRIHDFKWDQNLVVXFKWKDWERLOLQJLVQRWSRVVLEOH
'HWDLOVRIWKHKHDWORDGLQJVDUHJLYHQLQ7DEOHIRUWKHVWDWXVRIWKH+$67VLQ$OVRLWVKRXOGEH
QRWHGWKDWIRUHDFKRIWKH+$67VWKHKHDWJHQHUDWHGLVOHVVWKDQRIWKHKHDWUHPRYDOFDSDFLW\
RI HDFKWDQNWKHUHLVDODUJHVDIHW\PDUJLQ7KHLQLWLDOUDWHRIKHDWJHQHUDWHGIDOOVRIIE\DERXWLQ
\HDUV LW WKHQ WDNHV D IXUWKHU \HDUV DSSUR[LPDWHO\ WR GHFD\ E\ DQRWKHU LH WR RI LWV
RULJLQDO UDWH 7KH KHDW JHQHUDWLRQ LV LPSRUWDQW LQ DVVHVVLQJ KD]DUGV VLQFH LW GHWHUPLQHV WKH WLPH WR
UHDFK YDSRUL]DWLRQ RI WKH FRQWHQWV WKH PRVW LPSRUWDQW PHFKDQLVP IRU UHOHDVH WR WKH HQYLURQPHQW
IROORZLQJDIDLOXUHRIFRROLQJ7KHODVW+$67VWREHEXLOWQXPEHUVDQGZHUHSXWLQWRRSHUDWLRQ
LQWKHVDPH\HDULQZKLFKWKH:DVWH9LWULILFDWLRQ3ODQWFDPHLQWRRSHUDWLRQ
&217,18('23(5$7,216$)(7<5(3257&265
3ULRU WR WKH SURGXFWLRQ LQ RI WKH &RQWLQXHG 2SHUDWLRQ 6DIHW\ 5HSRUW &265 WKH VDIHW\
GRFXPHQWDWLRQUHODWLQJWRWKH+$67VFRPSULVHGZKDWZDVUHIHUUHGWRDVWKH)XOO\'HYHORSHG6DIHW\
&DVH)'6&%\%1)/KDGIRUPHGWKHYLHZWKDWWKH)'6&ZKLOHLQFOXGLQJSUREDELOLVWLF
ULVN DVVHVVPHQWV 35$V IRU WKH ZLGH UDQJH RI IDXOW VFHQDULRVWKDW LW ZDV EHOLHYHG FRXOG RFFXU GLG
QRW
œ
œ
FRQVLGHUWKHSODQWHQJLQHHULQJLQVXIILFLHQWGHWDLO
SURYLGH D IXOO\ YLVLEOH GHPRQVWUDWLRQ RI WKH DELOLW\ RI WKH SODQW WR FRQWLQXH WR IXQFWLRQ LQ WKH
PDQQHUWKHVDIHW\FDVHDVVXPHV
,Q RUGHU WKHUHIRUH WR IXUWKHU LPSURYH WKH GHPRQVWUDWLRQ RI VDIHW\ D VHULHV RI PHHWLQJV RI
%1)/1XFOHDU ,QVWDOODWLRQV ,QVSHFWRUDWH1,, ZRUNLQJ JURXSV ZHUH VHW XS $ QXPEHU RI LPSRUWDQW
LPSURYHPHQWV LQ WKH ZD\ %1)/ SUHVHQWV LWV VDIHW\ FDVHV ZHUH LGHQWLILHG LQ SDUWLFXODU ZDV WKH
GHYHORSPHQW RI D PHWKRGRORJ\ IRU LQWHJUDWLQJ ³HQJLQHHULQJ VXEVWDQWLDWLRQ´ LH HYLGHQFH IRU WKH
FRQWLQXHGVDIHW\RIFRPSRQHQWVVWUXFWXUHVDQGV\VWHPVLQWR%1)/¶VVDIHW\DVVHVVPHQWV,QDGGLWLRQ
WR GHYHORSLQJ QHZ DVVHVVPHQW PHWKRGRORJLHV WKH ZRUNLQJ JURXSV WDNLQJ DFFRXQW RI WKH QHHG WR
VWUHDPOLQH WKH VDIHW\ FDVH SURSRVHG WKH GHYHORSPHQW RI D &RQWLQXHG 2SHUDWLRQ 6DIHW\ 5HSRUW
&265 7KLV ZDV LQWHQGHG WR EULQJ WRJHWKHU WKH FRQFOXVLRQV RI GHWDLOHG UHYLHZV DVVHVVPHQWV
HQJLQHHULQJ VXEVWDQWLDWLRQ DQG DQDO\VLV ZRUN ,W ZDV WKLV QHZ VW\OH RI VDIHW\ UHSRUW ZKLFK %1)/
DJUHHGWKH53,,FRXOGH[DPLQHWRJHWKHUZLWKVXSSRUWLQJGRFXPHQWDWLRQ,WVKRXOGEHQRWHGWKDWDV
LQGLFDWHG DERYH WKH UHFHQW 1,, UHSRUW RQ WKH +$67V >+6( D@ ZDV EDVHG RQ WKH )'6& DQG
VXSSRUWLQJ LQIRUPDWLRQ SURYLGHG E\ %1)/ 7KH &265 ZDV QRW FRPSOHWH ZKHQ 1,, ZDV SUHSDULQJ
+6(D
7KH&265H[SDQGVRQWKH)'6&WRLQFOXGHHQJLQHHULQJVXEVWDQWLDWLRQDQGSURYLGHVDQDXGLWDEOHWUDLO
RI VXEVLGLDU\GRFXPHQWV
,WFRPSULVHVWKHIROORZLQJVHFWLRQV
œ
œ
œ
œ
œ
œ
œ
œ
,QWURGXFWLRQ
'HVFULSWLRQRISODQWSURFHVVDQGRSHUDWLQJSKLORVRSK\
5HYLHZRIRSHUDWLRQDOVDIHW\H[SHULHQFH
6DIHW\DVVHVVPHQWVXPPDU\
(QJLQHHULQJVXEVWDQWLDWLRQ
'HPRQVWUDWLRQ RI FRPSOLDQFH ZLWK 1,, 6DIHW\ $VVHVVPHQW SULQFLSOHV >+6( @ LQFOXGLQJ
WKHUHTXLUHPHQWWKDWUDGLDWLRQH[SRVXUHVPXVWEHNHSWDVORZDVUHDVRQDEO\SUDFWLFDEOH
&RQFOXVLRQV
$XGLWDEOHWUDLO
)RU VHFXULW\ UHDVRQV SURYLVLRQV DJDLQVW DFWV RI ZDU DQGRU WHUURULVW DWWDFN DUH QRW LQFOXGHG LQ WKH
&265
7KH &265 LQFOXGHV ERWK WUDGLWLRQDO GHWHUPLQLVWLF VDIHW\ DVVHVVPHQWV DQG 35$ 7KH 35$ LQYROYHV
FRQVLGHUDWLRQ RI SRVVLEOH RXWFRPHV RI GLIIHUHQW XQOLNHO\ LQLWLDWLQJ HYHQWV HJ FRPSOHWH ORVV RI
HOHFWULFDO VXSSO\ DQG VXEVHTXHQWO\ WKH VLJQLILFDQFH RI WKH IDLOXUH RI GLIIHUHQW PHFKDQLFDO DQG
HOHFWULFDO VDIHW\ GHYLFHV ZKLFK KDYH EHHQ LQVWDOOHG WR SUHYHQW IXUWKHU GHYHORSPHQW RI WKH DFFLGHQW
VFHQDULR7KH&265DLPVWRVKRZWKDWWKH1,,¶VOLFHQFHUHTXLUHPHQWVDUHPHWDQGWKDWWKHRYHUDOOULVN
LVDWOHDVW³WROHUDEOH´DVGHILQHGLQWKH1,,¶V6DIHW\$VVHVVPHQW3ULQFLSOHV
7KHVHSULQFLSOHVVWLSXODWHLQWHUDOLD
œ
œ
œ
œ
œ
œ
œ
WKDWWKHDQQXDOIUHTXHQF\RIRFFXUUHQFHRIDQHYHQWPXVWEHHYDOXDWHGLIWKDWHYHQWFRXOGOHDG
WRGRVHVWRPHPEHUVRIWKHSXEOLFLQH[FHVVRIP6Y
D EDVLFVDIHW\OLPLWRIRQHLQDKXQGUHGSHU\HDUIRUHYHQWVOHDGLQJ WR GRVHVWRWKH SXEOLF RI
EHWZHHQDQGP6Y
D EDVLF VDIHW\ REMHFWLYH GHILQHG DV WKH SRLQW EH\RQG ZKLFK WKH 1,, QHHG QRW VHHN IXUWKHU
LPSURYHPHQWV RI RQH LQ WHQ WKRXVDQG SHU \HDU IRU HYHQWV OHDGLQJ WR GRVHV WR WKH SXEOLF RI
EHWZHHQDQGP6Y
D EDVLFVDIHW\OLPLWRIRQHLQWHQWKRXVDQGSHU\HDUIRUHYHQWVOHDGLQJWRGRVHVWRWKHSXEOLFLQ
H[FHVVRI6Y
D EDVLFVDIHW\REMHFWLYHRIRQHLQDPLOOLRQ SHU\HDUIRUHYHQWVOHDGLQJWRGRVHVWRWKHSXEOLFLQ
H[FHVVRI6Y
WKDWLIWKHSRVWXODWHGIUHTXHQF\RIRFFXUUHQFHLVFOHDUO\YHU\ORZLQFRPSDULVRQWRWKHDERYH
FULWHULDWKHQWKHUHLVQRUHTXLUHPHQWWRFDOFXODWHLWQXPHULFDOO\
WKDWDOOUDGLDWLRQH[SRVXUHVPXVWEHNHSWDVORZDVUHDVRQDEO\SUDFWLFDEOH
7KHEDVLFVDIHW\OLPLWLVGHILQHGDVWKHPD[LPXPIUHTXHQF\DWZKLFKWKHFRUUHVSRQGLQJHYHQWLVMXVW
³WROHUDEOH´7KHEDVLFVDIHW\REMHFWLYHLVGHILQHGDV WKH SRLQW EH\RQG ZKLFK WKH 1,, QHHG QRW VHHN
IXUWKHUVDIHW\LPSURYHPHQWV7KHUHLVVWLOODQREOLJDWLRQKRZHYHUWRLPSURYHVDIHW\EH\RQGWKHEDVLF
VDIHW\REMHFWLYHLILWLVUHDVRQDEO\SUDFWLFDEOHWRGRVR
$OWKRXJK WKHUH DUH QR IRUPDOO\ DJUHHG LQWHUQDWLRQDO VWDQGDUGV RQ WROHUDELOLW\ RI ULVNV WKH 1,,
SULQFLSOHV DV RXWOLQHG DERYH DQG H[SODLQHG LQ PRUH GHWDLO LQ +6( JHQHUDOO\ UHIOHFW
LQWHUQDWLRQDOO\DFFHSWHGSULQFLSOHV
7KH&265GRHVQRWFRQVLGHUWKHUDGLRORJLFDOFRQVHTXHQFHVRIYHU\ORZSUREDELOLW\KLJKFRQVHTXHQFH
DFFLGHQWV EHFDXVH RQFH WKH EDVLF VDIHW\ REMHFWLYH LV DFKLHYHG QR IXUWKHU VDIHW\ LPSURYHPHQWV DUH
UHTXLUHGE\WKH1,,+RZHYHUZHEHOLHYHWKDWDPRUHFRPSOHWHDQDO\VLVRIWKHFRQVHTXHQFHVRIVXFK
DFFLGHQWVVKRXOGEHXQGHUWDNHQLQRUGHUWRDVVLVWMXGJHPHQWRQWKHQHHGWRDGMXVWRUHQKDQFHDFFLGHQW
PDQDJHPHQWDQGHPHUJHQF\UHVSRQVHSURFHGXUHV
7KH QH[W VHFWLRQ FRQVLGHUV WKH WUHDWPHQW LQ WKH &265 RI D QXPEHU RI VSHFLILF LVVXHV UHOHYDQW WR
VDIHW\DQGLQWKHFDVHRIHDFKLVVXHHYDOXDWHVZKHWKHUWKHDERYHSULQFLSOHVDUHVDWLVIDFWRULO\FRPSOLHG
ZLWK
63(&,),&6$)(7<,668(6
/RVVRI&RROLQJ
:H GHFLGHG WR FRQFHQWUDWH RQ ORVV RI FRROLQJ WR WKH ZKROH RI WKH EXLOGLQJ KRXVLQJ WKH +$67V
EXLOGLQJ%7KLVGHFLVLRQZDVEDVHGRQWKHDVVXPSWLRQZKLFKZHDFFHSWHGWKDWLQWKHFDVHRI
ORVVRIFRROLQJWRDVLQJOH+$67DQG VXEVHTXHQW ERLOLQJ RI LWV FRQWHQWV WKH YHQWLODWLRQ H[WUDFW DQG
FOHDQXSV\VWHPZRXOGSUHYHQWVLJQLILFDQWGLVFKDUJHVWRWKHHQYLURQPHQW+RZHYHU%1)/DFFHSWWKDW
LIWKHUH ZHUH WR EHFRPSOHWHIDLOXUH RI FRROLQJ LQ DOOWKH +$67V WKH V\VWHP LQFOXGLQJ HOHFWURVWDWLF
SUHFLSLWDWRUVDQGVFUXEEHUVFRXOGEHRYHUZKHOPHG
,W ZDV QRWHG WKDW GXH WR WKH SK\VLFDO SUR[LPLW\ RI SDUWV RI WKH GLIIHUHQW ULQJ PDLQV ZKLFK VXSSO\
FRROLQJZDWHUWRWKH+$67VWKHFRROLQJFLUFXLWVIRUWKH +$67V FDQQRW EH GHVFULEHGDV FRPSOHWHO\
LQGHSHQGHQW (YHQ WKRXJK WKHUH LV D KLJK OHYHO RI UHGXQGDQF\ LQ WKH FRROLQJ V\VWHP WKLV ODFN RI
LQGHSHQGHQFHUHSUHVHQWVDVDIHW\FRQFHUQ
7KHUHDUHIRXUGHVLJQDWHGFRROLQJSXPSVDWHDFKRIWKHWZRFRROLQJWRZHUVZKHUHDVRQO\RQHSXPS
DQG WRZHU DUH UHTXLUHG WR HQVXUH FRROLQJ :DWHU VXSSOLHV LQFOXGH WZR UHVHUYRLUV RQH RI ZKLFK LV
QRUPDOO\XVHGWRWRSXSWKHFRROLQJWRZHUV:DWHUFDQDOVREHGUDZQIURPWKH&DOGHU5LYHU7KHUH
DUHDQXPEHURIRSWLRQVIRUFRQQHFWLQJWKHVHZDWHUVXSSOLHVWRWKH+$67FRROLQJFRLOV0RUHRYHULI
DOO WKH SXPSV VKRXOG IDLO ZDWHU FDQ EH H[WUDFWHG IURP DQ\ RI WKHVH VRXUFHV XVLQJ ILUH KRVHV DQG
SRUWDEOH SXPSV (YHQ LI DOO WKH ZDWHU VXSSO\ SLSHV ZHUH IUR]HQ ZDWHU FRXOG EH SXPSHG IURP WKH
&DOGHU5LYHUXVLQJILUHKRVHV7KLVLVVXHLVGLVFXVVHGIXUWKHUXQGHU([WHUQDO(YHQWV
,WKDVEHHQFDOFXODWHGWKDWWKH+$67ZLWKWKHKLJKHVWDQWLFLSDWHGKHDWORDGLQJZRXOGVWDUWWRERLOLQ
DERXWKRXUVIROORZLQJORVVRIFRROLQJDQGWKDWVLJQLILFDQWHYDSRUDWLRQZRXOGFRPPHQFHDIWHUDERXW
KRXUVLHZKHQWKHFRQWHQWVZHUHZLWKLQDIHZGHJUHHVRIERLOLQJ,WLVSHVVLPLVWLFDOO\DVVXPHG
LQWKH &265 WKDW RQFH ERLOLQJ FRPPHQFHG LW ZRXOG FRQWLQXH XQWLO KRXUV DIWHUWKHWLPH FRROLQJ
ZDVORVW,QRUGHUWRHVWLPDWHWKHVLJQLILFDQFHRIORVVRIFRROLQJWRDOO+$67VLWKDVDOVREHHQDVVXPHG
WKDW WKH ILOOHG +$67V LQ WKH JURXS ± ZRXOG VWDUW ERLOLQJ DIWHU KRXUV IROORZLQJ ORVV RI
FRROLQJLQWKHFDVHRI+$67VWKHUDGLRDFWLYLW\KDVGHFD\HGWROHYHOVDWZKLFKWKHKHDWSURGXFHG
LV LQVXIILFLHQW WR FDXVH ERLOLQJ 7KH FDOFXODWHG GRVH WR WKH PRVW H[SRVHG PHPEHU RI WKH SXEOLF
IROORZLQJERLOLQJFDXVHGE\DVXVWDLQHGORVVRIFRROLQJIRUKRXUVLVOHVVWKDQP6Y7KHDQQXDO
SUREDELOLW\RIIDLOXUHWRUHLQWURGXFHFRROLQJZLWKLQKRXUVKDVEHHQFDOFXODWHGDVOHVVWKDQIRXULQD
PLOOLRQZKLFKLVEHORZWKHYDOXHRIRQHLQWHQWKRXVDQG DWZKLFKIXUWKHULPSURYHPHQWVLQVDIHW\DUH
UHTXLUHG 1HYHUWKHOHVV LW ZDV QRWHG WKDW LQFUHDVLQJ WKH OHYHO RI DXWRPDWLRQ LQ ZDWHU VXSSO\ VZLWFK
RYHUSURFHGXUHVDQGLPSURYLQJWKHSK\VLFDOSURWHFWLRQRIHVVHQWLDOHTXLSPHQWVXFKDVFRROLQJSXPSV
ZRXOGUHGXFHWKHSUREDELOLW\RIIDLOXUHVWLOOIXUWKHU
:HFRQILUPWKDWWKHFDOFXODWLRQVLQGLFDWHWKDWWKH1,,VDIHW\SULQFLSOHVDVVXPPDULVHGLQVHFWLRQ
DUHPHW
&KHPLFDO5HDFWLRQV
+\GURJHQ%XUQLQJ([SORVLRQV
7KHUH LV D UDGLDWLRQ LQGXFHG PHFKDQLVP NQRZQ DV UDGLRO\VLV WKDW JHQHUDWHV K\GURJHQ LQ ZDWHU RU
DTXHRXVVROXWLRQVVXFKDVWKHUDGLRDFWLYHOLTXRUFRQWDLQHGLQWKH+$67
+RZHYHUWKHSUHVHQFHRIK\GURJHQZDVQHYHUGHWHFWHGE\WKHLQVWUXPHQWLQLWLDOO\ILWWHGLQWKH+$67
YHQWLODWLRQ V\VWHP 7KH DFFHSWHG ORZHU OLPLW RI IODPPDELOLW\ IRU K\GURJHQ LQ DLU LV 7KH
PD[LPXP RSHUDWLQJ FRQFHQWUDWLRQ LQ DLU LV WDNHQ E\ %1)/ WR EH 7KH K\GURJHQ GHWHFWRU ZDV
FDSDEOHRIPHDVXULQJEHORZWKLVOHYHO%HFDXVHK\GURJHQZDVQRWGHWHFWHGLQWKHYHQWLODWLRQV\VWHP
RYHU PDQ\ \HDUV RI RSHUDWLRQ WKH GHWHFWRU ZDV UHPRYHG 5LJKWO\ KRZHYHU FRQFHUQ DERXW WKH
JHQHUDWLRQ RI K\GURJHQ LQ WKH WDQNV KDV QRW EHHQ GLVPLVVHG 7KH SRVVLELOLW\ RI GHWHFWLQJ K\GURJHQ
ZLWKLQDWDQNGLUHFWO\DERYHWKHOLTXRULVQRZEHLQJLQYHVWLJDWHG
:HEHOLHYHWKDWJLYHQWKHVHULRXVKD]DUGWKDWWKHSUHVHQFHRIK\GURJHQZRXOGSRVHLQDQHPHUJHQF\
VLWXDWLRQRQHRUSUHIHUDEO\WZRK\GURJHQGHWHFWRUVLQWKHYHQWLODWLRQV\VWHPZRXOGDLGRSHUDWRUVLQ
WKHLUGLDJQRVLVRIWKHHPHUJHQF\DQGLQGHFLGLQJRQFRUUHFWLYHPHDVXUHV
5HG2LO5HDFWLRQV
8QGHU FHUWDLQ VSHFLILF FRQGLWLRQV LQ D PL[WXUH RI QLWUDWHV DQG RUJDQLF VROYHQWV D UXQDZD\ FKHPLFDO
UHDFWLRQRIWHQUHIHUUHGWRDV³5HG2LO´UHDFWLRQPD\RFFXU,WZDVWKHFDXVHRIDQDFFLGHQWDWWKH
QXFOHDUIXHOUHSURFHVVLQJIDFLOLW\DW7RPVNLQ5XVVLDLQ7KHSRVVLELOLW\RIVROYHQWFDUU\RYHU
IURP WKH 0DJQR[ RU 7+253 UHSURFHVVLQJ SODQWV WR WKH +$67V DOWKRXJK YHU\ ORZ EHFDXVH RI
RSHUDWLQJSURFHGXUHVDQGDOVRWKHSURFHVVRIHYDSRUDWLRQRIWKHOLTXLGSULRUWRVWRUDJHLQWKH+$67
FDQQRWEHUXOHGRXW7KHORVVRIFRROLQJWRWKH+$67DQGDQLQFUHDVHLQWHPSHUDWXUHRID+$67¶V
FRQWHQWV ZKLFK FRQWDLQV QLWUDWHV FDQ DOVR QRW EH UXOHG RXW 7KXV WKUHH RI WKH DFNQRZOHGJHG
SUHUHTXLVLWHVRID³5HG2LO´UHDFWLRQPD\EHSUHVHQWLQD+$67DOEHLWZLWKDYHU\ORZSUREDELOLW\
7KHILQDOFRQGLWLRQQHFHVVDU\IRUWKHUHDFWLRQLVSUHVVXUH6LQFHWKH+$67VDUHSHUPDQHQWO\YHQWHGWR
DWPRVSKHUHDQGPHFKDQLVPVIRUSUHVVXULVDWLRQDUHGLIILFXOWWRFRQFHLYHWKHRYHUDOOSUREDELOLW\RIWKH
UHDFWLRQLVMXGJHGWREHZHOOEHORZWKHULVNVWDQGDUGVHWE\WKHUHJXODWRU
1HYHUWKHOHVVJLYHQWKHSRWHQWLDOO\YHU\VHULRXVFRQVHTXHQFHVRIDQH[SORVLRQ DVD UHVXOW RI D³5HG
2LO´UHDFWLRQZHEHOLHYHWKDWWKH&265VKRXOGDWOHDVWLQFOXGHDQXQTXDQWLILHGIDXOWWUHHWRLQGLFDWH
PRUHFOHDUO\WKHQXPEHURIVWHSVUHTXLUHGIRUVXFKDQRFFXUUHQFHDQGKHQFHLWVORZSUREDELOLW\
,WZDVDOVRQRWHGWKDW%1)/DUHFRQWLQXLQJWRLQYHVWLJDWH³5HG2LO´UHDFWLRQV
&RQGLWLRQRI8QGHUJURXQG&RROLQJ:DWHU3LSHV
7KHFRROLQJZDWHUVXSSO\SLSHVWRDQGIURPWKH+$67VUXQXQGHUJURXQGIRUDGLVWDQFHRIVRPH
PHWUHV:HZHUHFRQFHUQHGDERXWWKHLUFRQGLWLRQVLQFHWKH\KDYHEHHQLQXVHIRUVRPH\HDUV:H
QRWHG WKDW VKRXOG D ZDWHU VXSSO\ SLSH IDLO RU IUHH]H WKHUH ZHUH VHYHUDO DOWHUQDWLYH PHWKRGV RI
VXSSO\LQJFRROLQJZDWHUWRWKH+$67V
%UHDNWKURXJKRI+LJKO\$FWLYH/LTXRULQWR&RROLQJ6\VWHP
%HDULQJLQPLQGWKHWKLFNQHVVRIWKH+$67ZDOOVZHDFFHSWHGWKDWWKHPRUHOLNHO\URXWHIRUOLTXRUWR
HVFDSHLVYLDDOHDNDJHLQWRWKHFRROLQJFRLOV7KHVHDUHPDGHRIWKHVDPHPDWHULDODVWKH+$67VEXW
KDYH PXFK WKLQQHU ZDOOV WR LQFUHDVH KHDW WUDQVIHU :H WKHUHIRUH H[DPLQHG WKH VDIHW\ DQDO\VLV
LQYROYLQJWKHOHDNDJHRIKLJKO\DFWLYHOLTXRULQWRWKHFRROLQJV\VWHPYLDDGHIHFWLYHFRLOOHDGLQJWRD
UHOHDVHRIUDGLRDFWLYLW\WRWKHDWPRVSKHUH7KLVFRXOGRFFXULQWKHYHU\XQOLNHO\HYHQWRIDUHYHUVDORI
WKHXVXDOSRVLWLYHSUHVVXUHGLIIHUHQWLDOEHWZHHQFRROLQJZDWHUDQG+$67FRQWHQWV:HZHUHVDWLVILHG
ZLWKWKHDQDO\VLVZKLFKFRQFOXGHGWKDWWKHGRVHVWRWKHPRVWH[SRVHGPHPEHUVRIWKHSXEOLFZHUHD
IUDFWLRQRIDP6Y:HFKHFNHGWKHIDXOWWUHHFDOFXODWLRQVDQGDJUHHGZLWKWKHHVWLPDWHRIWKHDQQXDO
SUREDELOLW\RIWKLVDFFLGHQWEHLQJOHVVWKDQLQ
&ULWLFDOLW\
7KHSRVVLELOLW\RIDFULWLFDOLW\DFFLGHQWWKDWLVDQDFFLGHQWZKHUHWKHUHLVVXIILFLHQWPDVVRIDILVVLOH
PDWHULDO WR LQLWLDWH D QXFOHDU FKDLQ UHDFWLRQ LV D PDWWHU RI FRQFHUQ LQ DQ\ SURFHVV LQYROYLQJ WKH
SURGXFWLRQKDQGOLQJRUVWRUDJHRIILVVLOHPDWHULDO
,QHVVHQFHWZRVFHQDULRVDUHFRQVLGHUHG
œ WKHFRQFHQWUDWLRQRIILVVLOHPDWHULDOLQWKHEXONOLTXLGLQWKH+$67V
œ ORFDOFRQFHQWUDWLRQRIILVVLOHPDWHULDOLQHLWKHUVROLGVFROORLGVRULQIUHHSKDVHVROYHQWV
:HQRWHGWKDWWKHKLJKHVWFRQFHQWUDWLRQRIILVVLOHPDWHULDOLQIHHGOLTXRUIURP7+253LVQRWJUHDWHU
WKDQ JUDPV OLWUH ZKLOH WKH FRQFHQWUDWLRQLQ OLTXRU DULVLQJ IURP WKH UHSURFHVVLQJ RI 0DJQR[
IXHO LV PXFK ORZHU 7KLV LV ZHOO EHORZ WKH FRQFHQWUDWLRQ RI JUDPV OLWUH LQ ZDWHU DW ZKLFK
FULWLFDOLW\LVGHHPHGLPSRVVLEOHUHJDUGOHVVRIWKHJHRPHWU\LQYROYHG1RFUHGLEOHVFHQDULRVKDYHEHHQ
LGHQWLILHGZKHUHWKHFRQFHQWUDWLRQLQWKHEXONOLTXLGFRXOGUHDFKWKLVOLPLW
$OVRWKHOHYHOVRIILVVLOHPDWHULDOLQVROLGVVHSDUDWHGLQ7+253ZKLFKPLJKWEHWUDQVIHUUHGWR%
DUHZHOOEHORZWKHFULWLFDOLW\OLPLW
:LWKUHJDUGWRWKHSURGXFWLRQRIVROLGVZLWKLQWKH+$67VWKHPVHOYHVZHQRWHGWKDWHYHQLIDOOWKH
OLTXLGIUDFWLRQZDVHYDSRUDWHGWKHPDVVRISOXWRQLXPLQWKHUHPDLQLQJVROLGPDWHULDOZRXOGEHOHVV
WKDQWKHFULWLFDOPDVVIRUWKHJHRPHWU\LQTXHVWLRQ
/LNHZLVH LW LV GHPRQVWUDWHG LQ WKH &265 WKDW WKH SURGXFWLRQ RI FROORLGV ZRXOG QRW UHVXOW LQ WKH
FRQFHQWUDWLRQRIDFULWLFDOPDVVRISOXWRQLXP
7KHSUHVHQFHRIIUHHSKDVHVROYHQWVDVDUHVXOWRIWKHLULQDGYHUWHQWWUDQVIHUIURP7+253DQGKLJKHU
WKDQQRUPDOFRQFHQWUDWLRQVRIILVVLOHPDWHULDOFRXOGDOVROHDGLQSULQFLSOHWRWKHDFFXPXODWLRQRID
FULWLFDOPDVV:HZRXOGDFFHSWWKHFRQFOXVLRQLQWKH&265WKDWWKHSUREDELOLW\RIWKLVRFFXUULQJLV
YHU\ORZLHOHVVWKDQRQHLQDPLOOLRQ SHU\HDU+RZHYHUWKHLQFOXVLRQRITXDQWLILHGHYHQWWUHHVWR
GHPRQVWUDWH WKLV DV ZHOO DV WR LOOXVWUDWH WKH RWKHU SRWHQWLDO FULWLFDOLW\ VFHQDULRV UHIHUUHG WR DERYH
ZRXOGEHKHOSIXOLQFODULI\LQJWKHRYHUDOOVLWXDWLRQ
([WHUQDO(YHQWV
(DUWKTXDNHV
(DUWKTXDNHVSUHVHQWWKUHHSRWHQWLDOKD]DUGV
œ
œ
œ
'DPDJHWRWKHFHOOVUHVXOWLQJLQORVVRIVKLHOGLQJDQGFRQVHTXHQWO\HOHYDWHGH[WHUQDOGRVHUDWHV
'DPDJH WR D WDQN RU WUDQVIHU SLSH UHVXOWLQJ LQ VSLOODJH RI KLJKO\ DFWLYH OLTXRU ZKLFK FRXOG
XOWLPDWHO\ERLOOHDGLQJWRRQDQGRIIVLWHFRQVHTXHQFHV
'DPDJHWRWKHFRROLQJDQGYHQWLODWLRQV\VWHPVDOVROHDGLQJWRRQDQGRIIVLWHFRQVHTXHQFHV
$ IXOO35$KDVQRWEHHQFDUULHGRXWLQUHODWLRQWRHDUWKTXDNHV7KHDVVXPHGDQQXDOSUREDELOLWLHVIRU
HDUWKTXDNHVZLWKDSHDNKRUL]RQWDOJURXQGDFFHOHUDWLRQRIJDQGJDUHRQHLQDWKRXVDQGDQG
RQH LQWHQWKRXVDQGUHVSHFWLYHO\:KLOHLWLVQRWSRVVLEOHWRUHODWHWKHVHDFFHOHUDWLRQVLQDQ\VLPSOH
ZD\WRWKHPRUHFRPPRQO\XVHG5LFKWHU6FDOHWKHKLJKHUILJXUHPD\EHWDNHQDVFRUUHVSRQGLQJWRD
VHYHUHHDUWKTXDNH
7KH FHOOV LQ ZKLFK +$67V DUH ORFDWHG DQG WKH +$67V WKHPVHOYHV ZHUH QRW GHVLJQHG WR WDNH
DFFRXQWRISRWHQWLDOHDUWKTXDNHGDPDJH/DWHUFHOOVZHUHGHVLJQHGZLWKVRPHFRQVLGHUDWLRQRIWKLV
KD]DUGLQPLQGZKLOH+$676DQGZHUHH[SOLFLWO\GHVLJQHGWRZLWKVWDQGDJHDUWKTXDNH
$ UHWURVSHFWLYHVWXG\ZKLFKLVLQFOXGHGLQWKH&265KDVFRQFOXGHGWKDWDOOWKH+$67VWKHFHOOVLQ
ZKLFK WKH\ DUH ORFDWHG DQG PRVW DQFLOODU\ HTXLSPHQW ZRXOG ZLWKVWDQG J DQG WKDW DOO +$67V
FHOOVDQGFULWLFDOLQFHOOV\VWHPVZRXOGSUREDEO\ZLWKVWDQGJZLWKRXWDQ\ORVVRIFRQWDLQPHQW
,WPD\UHDVRQDEO\EHFRQFOXGHGWKDWDJHDUWKTXDNHZRXOGQRWUHVXOWLQHOHYDWHGH[WHUQDOGRVHVDV
D UHVXOWRIVKLHOGLQJGDPDJH
6RPH RI WKH DVVRFLDWHG VWUXFWXUHV LQ SDUWLFXODU WKH FRROLQJ WRZHUV DUH QRW GHVLJQHG WR ZLWKVWDQG
HDUWKTXDNHV,WLVEHOLHYHGLQSDUWLFXODUWKDWRQHRIWKHFRROLQJWRZHUVZRXOGQRWZLWKVWDQGDJ
HDUWKTXDNH DQG WKDW WKH RWKHU ZRXOG EHFRPH XQVHUYLFHDEOH LI VXEMHFW WR D J HDUWKTXDNH 7KH
XQDYDLODELOLW\RIWKHVHWRZHUVZKLOHUHGXFLQJWKHOHYHORIGHIHQFHLQGHSWKLVPRVWXQOLNHO\WROHDGWR
DQDFFLGHQWZLWKVLJQLILFDQWRIIVLWHFRQVHTXHQFHV%DFNXSHTXLSPHQWWRSURYLGHHVVHQWLDOVHUYLFHVLQ
SDUWLFXODU HOHFWULFLW\ FRROLQJ ZDWHU DQG FRPSUHVVHG DLU ZRXOG SUREDEO\ VWLOO EH DYDLODEOH ,W LV
HVWLPDWHG LQ WKH &265 WKDW WKH IUHTXHQF\ RI +$67V ERLOLQJ IRU D VXIILFLHQW WLPH WR UHVXOW LQ
LQGLYLGXDOGRVHVLQH[FHVVRI6YDVDUHVXOWRIORVVRIFRROLQJIROORZLQJHDUWKTXDNHGDPDJHZRXOG
EH OHVV WKDQ RQH LQ WHQ WKRXVDQG SHU \HDU 7KH 1,, GHHPV WKLV WR EH D WROHUDEOH ULVN 0XFK KLJKHU
SXEOLFGRVHVFRXOGLQSULQFLSOHDULVHLIWKHEXLOGLQJ%LQZKLFKWKH+$67VDUHVLWHGZDVVREDGO\
GDPDJHGWKDW ZRUNHUV FRXOG QRW HQWHU LW WR UHVWRUHFRROLQJ7KH DELOLW\ RI WKH EXLOGLQJ WR ZLWKVWDQG
HDUWKTXDNHVLVVWLOOEHLQJDVVHVVHGZLWKLQWKHIUDPHZRUNRIWKH&265
5HFRPPHQGDWLRQVLQWKH&265LQFOXGH
œ
œ
œ
œ
œ
&DUU\LQJRXWDIXOO35$UHYLHZ
,PSURYLQJWKHFRPSUHVVHGDLUVXSSO\WRSXUJHWKH+$67VDVH[LVWLQJFRPSUHVVHGDLUVXSSOLHVIRU
WKLVSXUSRVHZRXOGSUREDEO\EHXQVHUYLFHDEOHIROORZLQJDQHDUWKTXDNH
(UHFWLQJDVLPSOHHDUWKTXDNHSURRIVWRUHLQZKLFKWRORFDWHYLWDOHTXLSPHQW
8SJUDGLQJRUUHSODFLQJWKHFRROLQJWRZHUV
8SJUDGLQJWKHIDEULFRIEXLOGLQJ%WRUHGXFHWKHLPSDFWRIHDUWKTXDNHV
,WZDVQRWHGWKDWRSHUDWLQJSURFHGXUHVLQYROYLQJWKHWUDQVIHURIOLTXLG+/:ZRXOGEHVXVSHQGHGLI
HDUWKTXDNHVLQH[FHVVRIJDUHGHWHFWHGRUVXVSHFWHG
:HFRQFOXGHGWKDWWKHVDIHW\VWXGLHVDUHLQFRPSOHWHIRUVWUXFWXUHVRXWVLGHRIWKHFHOOV&RQVHTXHQWO\
ZKLOHUHFRJQLVLQJWKDWLQWHQVLYHZRUNE\%1)/LVRQJRLQJZHFDQQRWFRQILUPWKDW1,,ULVNVWDQGDUGV
DUHIXOO\FRPSOLHGZLWK
$LUFUDIW&UDVK
7ZRVFHQDULRVDUHFRQVLGHUHGLQWKH&265
œ
œ
$ FROOLVLRQZLWKFRROLQJSODQWFDXVLQJORVVRIFRROLQJXOWLPDWHO\OHDGLQJWRERLOLQJ
,PPHGLDWHDHULDOUHOHDVHIROORZLQJDFUDVKLQWRRQHRIWKHFHOOVFRQWDLQLQJ+/:
(LWKHUVFHQDULRFRXOGUHVXOWLQSXEOLFGRVHVWRWKHFULWLFDOSRSXODWLRQLQH[FHVVRI6YIURPGLVSHUVHG
DFWLYLW\ +RZHYHU LWLVVWDWHG LQWKH &265 WKDW RQO\ D KHDY\ FRPPHUFLDO RU PLOLWDU\ DLUFUDIW FRXOG
LQIOLFWVXIILFLHQWGDPDJHWRUHVXOWLQHLWKHURIWKHVHVFHQDULRVDQGWKDWWKHDQQXDOSUREDELOLW\RIVXFKDQ
HYHQWLVOHVVWKDQRQHLQDPLOOLRQZKLFKLVEHORZWKH1,,YDOXHDWZKLFKIXUWKHUVDIHW\PHDVXUHVDUH
UHTXLUHG2QWKHEDVLVRIWKHLQIRUPDWLRQSURYLGHGLQWKH&265ZHZRXOGDFFHSWWKLVFRQFOXVLRQ,W
VKRXOGDOVREHSRLQWHGRXWWKDWWKLVDQDO\VLVWDNHVQRDFFRXQWRIUHVWULFWLRQVZKLFKH[LVWRQORZIO\LQJ
RYHURUZLWKLQDVSHFLILHGUDGLXVRIWKH6HOODILHOGVLWH
/RVVRI&RROLQJWRD+$67GXHWRD&UDQH&ROOLVLRQ
$OWKRXJK QR KHDY\ REMHFWV DUH URXWLQHO\ PRYHG ZLWKLQ EXLOGLQJ % FUDQHV RSHUDWH FORVH WR WKLV
EXLOGLQJ:HWKHUHIRUHH[DPLQHGWKHSRVVLELOLW\RIDFUDQHFROOLVLRQZKLFKZHFRQVLGHUHGWREHDNLQ
WRD³KHDY\ORDGGURSDFFLGHQW´
$OOFUDQHRSHUDWLRQVPXVWEHFDUULHGRXWE\WUDLQHGSHUVRQQHOLQDFFRUGDQFHZLWKH[SOLFLWRSHUDWLQJ
LQVWUXFWLRQV DQG LQ OLQH ZLWK WKH DSSURSULDWH %ULWLVK 6WDQGDUG %6 6DIH 8VH RI &UDQHV
&RQWUDFWRUVPDNHZULWWHQDSSOLFDWLRQWRXVHFUDQHVDQGVXSSO\DZULWWHQ5LVN$VVHVVPHQWDQG6DIHW\
6WDWHPHQW 7KH VOHZLQJ DQJOH DQG ERRP UDGLXV DUH UHVWULFWHG E\ PHFKDQLFDO PHDQV LQ WKH IRUP RI
ZHOGHGVWRSVWRSUHYHQWRSHUDWLRQRYHUFULWLFDOEXLOGLQJVDQGHTXLSPHQW
,IGXHWRIDLOXUHRIWKHVHSUHFDXWLRQVFUDQHFROOLVLRQGDPDJHGLGRFFXUWKHGRVHWRWKHPRVWH[SRVHG
PHPEHURIWKHSRSXODWLRQDVDUHVXOWRIDLUERUQHFRQWDPLQDWLRQLVHVWLPDWHGDVP6YIURPGDPDJH
LQYROYLQJ WZR +$67V RU P6Y LI WKH YHQWLODWLRQ FOHDQXS V\VWHPV DOVR IDLO $ FUDQH FROOLVLRQ
FDXVLQJGDPDJHWRWKHYHQWLODWLRQV\VWHPVRIPRUHWKDQWZR+$67VLVQRWFRQVLGHUHGWREHDFUHGLEOH
HYHQW
,QFUHDVHG DFWLYLW\ LQ WKH FRROLQJ V\VWHP FRXOG DOVR XOWLPDWHO\ EH GLVFKDUJHGWRWKH VHD7KH FULWLFDO
JURXSGRVHLQWKLVFDVHFRXOGH[FHHGP6Y+RZHYHULWLVHVWLPDWHGLQWKH&265WKDWWKHDQQXDO
IUHTXHQF\RIRFFXUUHQFHRIVXFKDQLQFLGHQWLVOHVVWKDQRQHLQDPLOOLRQ
*DV&ORXG([SORVLRQ
:HHQTXLUHGDVWRZKDWWKHSUREDELOLW\RIDJDVFORXGH[SORVLRQRYHUWKHSODQWPLJKWEH7KLVFRXOG
DULVHIURPWKHUHOHDVHRIOLTXLGSHWUROHXPJDVRUOLTXLGQDWXUDOJDVIURPDVKLSLQWKHYLFLQLW\ :H
ZHUHVXSSOLHGZLWKGDWDRQWKHSDVVDJHRIVXFKVKLSVRIIWKH&XPEULDQFRDVWZKLFKVKRZHGWKDWWKLV
KD]DUGLVZHOOZLWKLQWKHULVNVWDQGDUGODLGGRZQE\WKHUHJXODWRU
5HOLDELOLW\'DWDEDVH
7KHIDLOXUHUDWHIRUHDFKV\VWHPZKRVHIXQFWLRQLPSLQJHVRQVDIHW\LVFDOFXODWHGE\FRPELQLQJZKDW
DUH EHOLHYHG WR EHUHSUHVHQWDWLYHIDLOXUH UDWHV IRUWKHFRPSRQHQWVDQG VWUXFWXUHV HJ SXPSV SLSHV
VHDOVYDOYHVHWFZKLFKPDNHXSWKDWV\VWHP7KHDVVHPEO\RILQIRUPDWLRQRQIDLOXUHUDWHVIRUVXFK
FRPSRQHQWVLVUHIHUUHGWRDVWKHUHOLDELOLW\GDWDEDVH
:HIRXQGWKDWWKH UHOLDELOLW\ GDWDEDVH UHOLHV WRD VLJQLILFDQW GHJUHH RQ GDWDIURP VRXUFHV ZKLFKDUH
VRPH\HDUVROGRUPRUH'DWDDUHDOVRFROOHFWHGRQVLWHEXWDUHQRWVXSSOHPHQWHGWRDQ\VLJQLILFDQW
GHJUHHIURPPRGHUQQDWLRQDODQGLQWHUQDWLRQDOH[WHUQDOGDWDEDVHV7KLVPHDQVWKDWWKHGDWDXVHGDUH
EDVHGRQVPDOOHTXLSPHQWDQGFRPSRQHQWLQYHQWRULHVDQGPD\QRWWKHUHIRUHEHRIKLJKDFFXUDF\1R
HIIHFWLYHTXDOLW\DVVXUDQFHV\VWHPDSSHDUHGWREHLQXVH
:HZHUHLQIRUPHGWKDWLWLVLQWHQGHGWRH[DPLQHWKHIHDVLELOLW\RIXVLQJODUJHH[WHUQDOGDWDEDVHVDQG
DOVRWRFDUU\RXWDSHHUUHYLHZRIWKHPDQDJHPHQWRIWKHGDWDEDVH0HDQZKLOHUHVRXUFHVQHHGWREH
GHGLFDWHGWRFRUUHFWLQJLQDFFXUDFLHVLQWKHGDWDEDVH
,W ZDV QRW SRVVLEOH WR TXDQWLI\ KRZ H[LVWLQJ VKRUWFRPLQJV LQ WKH GDWDEDVH PD\ KDYH DIIHFWHG 35$
FDOFXODWLRQV7KLVXQFHUWDLQW\LVDPDWWHUIRUFRQFHUQ
+XPDQ)DFWRUV
7KH &265 GHWDLOV QRUPDO DQG HPHUJHQF\ RSHUDWLQJ SURFHGXUHV DQG WUDLQLQJ SURJUDPPHV IRU
RSHUDWRUV:H H[DPLQHG D VDPSOH RIWKHWUDLQLQJ UHFRUGV RI RSHUDWRUVDQGWHDP OHDGHUVIRUHPHQ
%HFDXVH RSHUDWLRQ LV VR LPSRUWDQW WR VDIHW\ LQ EXLOGLQJ % ZH IHOW WKDW WKH WUDLQLQJ SURJUDPPH
VKRXOGEHVXEMHFWWRD4$SURJUDPPHDQGWRDXGLWRQD UHJXODUEDVLV:H ZHUH FRQFHUQHG WROHDUQ
WKDWXQOLNHPDQ\RWKHUVLPLODURUJDQLVDWLRQVZKLFKUHO\RQDOHUWZHOOWUDLQHGRSHUDWRUVWKH&265
GLGQRWPDNHUHIHUHQFHWRDV\VWHPIRUUDQGRPFKHFNLQJIRUGUXJDQGRUDOFRKRODEXVH6HQLRUVWDII
FRQILUPHGWKDWZKLOHLIDZRUNHULVVXVSHFWHGRIEHLQJXQGHUWKHLQIOXHQFHRIDOFRKRORUGUXJVKHVKH
ZLOOEHVHQWWRWKHPHGLFDOFHQWUHIRUH[DPLQDWLRQWKHUHLVQRV\VWHPRIUDQGRPFKHFNLQJLQSODFH
'RFXPHQW0DQDJHPHQW
7KH&265PDNHVUHIHUHQFHWRDQXPEHURIVDIHW\PDQXDOVOLFHQFHVDQGHQYLURQPHQWDOUHJXODWLRQV
,W ZDV QRW SRVVLEOH ZLWKLQ WKH WLPH DYDLODEOH WR H[DPLQH WKHVH GRFXPHQWV LQ GHWDLO EXW RQO\ WR
FRQVLGHU ZKHWKHU WKH\ FRYHUHG DOO WKH PDMRU VDIHW\ PDQDJHPHQW LVVXHV DQG ZKHWKHU WKH\ ZHUH
UHIHUHQFHGLQVXFKDZD\WRHQVXUHWKDWSHUVRQQHOIRUZKRPWKH\KDYHUHOHYDQFHDUHGLUHFWHGWRZDUGV
WKHP1RRPLVVLRQVZHUHQRWHGDQGDOOWKHUHOHYDQWGRFXPHQWVDUHFOHDUO\UHIHUHQFHG
7KLUG3DUW\$VVHVVPHQWRI&265
5HFHQWO\ %1)/ KDV LQLWLDWHG D SUDFWLFH RI KDYLQJ DVVHVVPHQWV RI WKHLU VDIHW\ FDVHV FDUULHG RXW E\
H[WHUQDO FRQVXOWDQWV RU E\ %1)/ VWDII ZKR KDYH KDG QR LQYROYHPHQW LQ WKH SURGXFWLRQ RU
LPSOHPHQWDWLRQRIWKHVDIHW\FDVHV7KLVDGGLWLRQDOWLHURIDSSUDLVDORIWKHVDIHW\FDVHVLVDSRVLWLYH
GHYHORSPHQW
&21&/86,216$1'5(&200(1'$7,216
:KLOHLWZDVSRVVLEOHWRFDUU\RXWRQO\DVDPSOLQJRIWKHVXEVWDQWLDOGRFXPHQWDWLRQZKLFKPDNHVXS
WKH&265LWLVEHOLHYHGWKDWWKHVDPSOLQJLQFOXGHGWKHPDMRUVDIHW\UHODWHGLVVXHV
$V D UHVXOW RI WKH H[DPLQDWLRQ ZKLFK ZDV FDUULHG RXW WKH IROORZLQJ FRQFOXVLRQV ZHUH UHDFKHG
UHJDUGLQJWKH&265DQGWKHVDIHW\RIWKHVWRUDJHRIKLJKO\DFWLYHOLTXLGZDVWHDW6HOODILHOG
7KH&265
œ
œ
œ
œ
œ
œ
œ
œ
$SDUWIURPWKHVHLVPLFVDIHW\FDVHWKH&265DSSHDUVWRLQFOXGHDOOWKHPDMRUDFFLGHQWVFHQDULRV
)RUVHFXULW\UHDVRQVSURYLVLRQVDJDLQVWDFWVRIZDUDQGRUWHUURULVWDWWDFNDUHQRWLQFOXGHG
$ PRUH FRPSOHWH DQDO\VLV VKRXOG EH XQGHUWDNHQ RI WKH UDGLRORJLFDO FRQVHTXHQFHV LQ WHUPV RI
UHOHDVHGDFWLYLW\DQGGRVHVWRFULWLFDOJURXSVRIYHU\ORZSUREDELOLW\KLJKFRQVHTXHQFHDFFLGHQWV
7KLV ZRXOG DVVLVW MXGJHPHQW RQ WKH QHHG WR DGMXVW RU HQKDQFH DFFLGHQW PDQDJHPHQW DQG
HPHUJHQF\UHVSRQVHSURFHGXUHV
7KHUHOLDELOLW\GDWDEDVHQHHGVXSGDWLQJDQGH[SDQVLRQWRLQFRUSRUDWHGDWDIURPUHOHYDQWH[WHUQDO
GDWDEDVHV,WDOVRQHHGVWREHVXEMHFWWRDQHIIHFWLYH4$V\VWHP,WZDVQRWSRVVLEOHWRTXDQWLI\
KRZH[LVWLQJVKRUWFRPLQJVLQWKHGDWDEDVHPD\KDYHDIIHFWHG35$FDOFXODWLRQV
)DXOW WUHHV DUH XVHG LQ WKH +$67 VDIHW\ DQDO\VHV LQ VRPH LQVWDQFHV EXW QRW DOZD\V *HQHUDOO\
WKH\ DUH RPLWWHG ZKHQ WKH VDIHW\ FDVH FDQ EH PDGH E\ GHWHUPLQLVWLF PHWKRGV :H IHHO WKDW
XQTXDQWLILHGIDXOWWUHHVZRXOGRIWHQEHKHOSIXOLQWKHVHFDVHVLIRQO\WRHQVXUHWKDWWKHRYHUDOOIDXOW
ORJLFLVFRUUHFW$OVRWKHUHDUHLQVWDQFHVZKHUHXQTXDQWLILHGIDXOWWUHHVDUHXVHGEXWZHWKLQNWKH\
VKRXOGEHTXDQWLILHGLQRUGHUWRGHPRQVWUDWHFRPSOLDQFHZLWKULVNVWDQGDUGV
7KHVHWRIVDIHW\PDQXDOVOLFHQFHVDQGHQYLURQPHQWDOUHJXODWLRQVDSSHDUHGWREHFRPSOHWHDQGWR
EH OLVWHGLQVXFKDZD\WKDWVWDIIIRUZKRPWKH\KDYHUHOHYDQFHDUHGLUHFWHGWRZDUGVWKHP
7KH &265 VKRXOG LQFOXGH D JORVVDU\ RI WHUPV 7KH DEVHQFH RI VXFK D JORVVDU\ PDNHV
XQGHUVWDQGLQJGLIILFXOWIRUUHDGHUVXQIDPLOLDUZLWKWKHDFURQ\PVDEEUHYLDWLRQVDQGWHUPLQRORJ\
0RUHLPSRUWDQWO\KRZHYHUDJORVVDU\ZRXOGKHOSDXWKRUV WR XVHIDPLOLDUWHUPV LQ D FRQVLVWHQW
ZD\)UHTXHQWO\VXFKZRUGVDVKD]DUGDFFLGHQWDQGIDXOWDUHXVHGV\QRQ\PRXVO\LQVRPHSODFHV
ZKLOHLQRWKHUVDVXEWOHGLIIHUHQFHEHWZHHQWKHPLVLPSOLHGDQRWKHUVLPLODUH[DPSOHZDV VDIHW\
IHDWXUHVDIHW\PHDVXUHDQGVDIHW\PHFKDQLVP
7KHUHFHQWLQWURGXFWLRQRIDVVHVVPHQWRIWKH&265E\SDUWLHVQRWUHVSRQVLEOHIRULWVSURGXFWLRQ
DQGLPSOHPHQWDWLRQUHSUHVHQWVDQLPSURYHPHQWLQHQVXULQJVDIHW\
,W ZDV QRWHG WKDW VLQFH %1)/ WRRN RYHU RZQHUVKLS RI WKH SODQW LQ WKHUH KDYH EHHQ QR
UHFRUGHGUHOHDVHVRIUDGLRDFWLYLW\ IURP WKH +$67V WR WKH HQYLURQPHQW DQG QR ILUHV LQ %XLOGLQJ
%
2YHUDOO6DIHW\
œ
œ
œ
œ
œ
œ
œ
([FHSW IRU WKH FRQFUHWH FHOOV DQG WKH +$67V WKHPVHOYHV WKH DELOLW\ RI SODQW V\VWHPV DQG WKHLU
DVVRFLDWHGVWUXFWXUHVDQGFRPSRQHQWVWRZLWKVWDQGDJHDUWKTXDNHWKDWLVDQHDUWKTXDNHZLWK
D UHWXUQIUHTXHQF\JUHDWHUWKDQRQHLQ\HDUVLVQRW\HWIXOO\SURYHQ
$SDUW IURP HDUWKTXDNH GDPDJH ZH DUH VDWLVILHG WKDW WKH 1,,¶V VWDQGDUGV RI VDIHW\ ZKLFK
JHQHUDOO\UHIOHFWLQWHUQDWLRQDOO\DFFHSWHGSUDFWLFHDUHEHLQJPHW
7KHIDFWWKDWDOWKRXJKWKHUHLVDKLJKOHYHORIUHGXQGDQF\LQWKH+$67FRROLQJZDWHUVXSSO\DQG
GLVWULEXWLRQ V\VWHP WKH +$67V GR QRW KDYH IXOO\ LQGHSHQGHQW FRROLQJ ZDWHU VXSSO\ FLUFXLWV
UHSUHVHQWVDVDIHW\FRQFHUQ
7KH K\GURJHQ GHWHFWRU LQ WKH +$67 YHQWLODWLRQ V\VWHP ZDV UHPRYHG RYHU \HDUV DJR ZH
XQGHUVWDQG EHFDXVH LW QHYHU UHFRUGHG WKH SUHVHQFH RI K\GURJHQ :H EHOLHYH WKDW JLYHQ WKH
VHULRXV KD]DUG WKDW WKH SUHVHQFH RI K\GURJHQ ZRXOG SRVH LQ DQ HPHUJHQF\ VLWXDWLRQ RQH RU
SUHIHUDEO\ WZR K\GURJHQ GHWHFWRUV LQ WKH YHQWLODWLRQ V\VWHP ZRXOG DLG RSHUDWRUV LQ WKHLU
GLDJQRVLVRIWKHHPHUJHQF\DQGLQGHFLGLQJRQFRUUHFWLYHPHDVXUHV
%HFDXVHVDIHW\UHOLHVVRKHDYLO\RQWKHJRRGSHUIRUPDQFHRIWKHRSHUDWRUVWKHSULQFLSOHVRI4$
VKRXOGEHDSSOLHGWRWKHLUWUDLQLQJERWKLQLWLDODQGUHIUHVKHU
&RQWUDU\WRWKHVLWXDWLRQWKDWREWDLQVDWPDQ\QXFOHDUVLWHVWKHUHLVQRUDQGRPFKHFNLQJIRUGUXJ
DQGRUDOFRKRODEXVHDPRQJWKHZRUNIRUFH6LQFH+$67VDIHW\LVVRGHSHQGHQWRQFRPSHWHQWDQG
DOHUWRSHUDWRUVDV\VWHPRIUDQGRPFKHFNLQJVKRXOGEHLQWURGXFHGDVVRRQDVSRVVLEOH
:KLOH QRWLQJ WKH 1,,¶V VHYHUH JHQHUDO FULWLFLVP LQ LWV )HEUXDU\ UHSRUW RQ LWV 7HDP
,QVSHFWLRQDW6HOODILHOGRIWKHPDQDJHPHQWRIVDIHW\DWWKHVLWH>+6(E@LWGLGQRWDSSHDU
WR XV WKDW WKLV FULWLFLVP LV DSSOLFDEOH WR WKH VWDII ZLWK UHVSRQVLELOLW\ IRU WKH +$67V ZKRP ZH
HQFRXQWHUHG:HIRUPHGWKHYLHZEDVHGRQRXUGHWDLOHGGLVFXVVLRQVZLWKWKHPWKDWWKH\ZHUH
FRPSHWHQWDQGZHOOPRWLYDWHG7KLVYLHZLVQRWLQFRQVLVWHQWZLWKWKH1,,¶VUHSRUW>+6(D@
RQ 6WRUDJH RI /LTXLG +LJK /HYHO :DVWH LQ ZKLFK WKH RQO\ UHIHUHQFH WR WKH TXDOLW\ RI WKH VWDII
DVVRFLDWHGZLWKWKH+$67VLVDIDYRXUDEOHRQH
:KLOHWKHSUHVHQWULVNVDVVRFLDWHGZLWKWKH+$67VDUHUHODWLYHO\ORZZHEHOLHYHWKDWWKH\FRXOGEH
UHGXFHGIXUWKHUE\DWWHQWLRQWRWKHPDWWHUVVHWRXWDERYH:HUHFRPPHQGWKDW%1)/EHSUHVVHGWR
DGGUHVVWKHVHSRLQWVDVDPDWWHURIXUJHQF\
7KHVDIHW\RIWKHVWRUDJHRIKLJKOHYHOUDGLRDFWLYHZDVWHLQOLTXLGIRUPLQWKH+$67VGHSHQGVRQWKH
FRQWLQXDO YLJLODQFH RI KXPDQ RSHUDWRUV DQG RQ WKH UHOLDEOH IXQFWLRQLQJ RI SRZHUHG VDIHW\ V\VWHPV
:KHQ FRQYHUWHG LQWR VROLG IRUP E\ YLWULILFDWLRQ WKH ZDVWH FDQ EH VDIHO\ VWRUHG ZLWKRXW VXFK
GHSHQGHQFH,WLVWKHUHIRUHLPSRUWDQWWKDWULVNVDVVRFLDWHGZLWKWKHVWRUDJHRIZDVWHLQOLTXLGIRUPEH
PLQLPLVHGDVVRRQDVSRVVLEOHE\LQFUHDVLQJWKHUDWHRI YLWULILFDWLRQ RU GHFUHDVLQJ WKHRXWSXW RIWKH
0DJQR[RU7KRUSUHSURFHVVLQJSODQWVRUE\DFRPELQDWLRQRIERWK
5()(5(1&(6
+HDOWKDQG6DIHW\([HFXWLYH6DIHW\$VVHVVPHQW3ULQFLSOHVIRU1XFOHDU3ODQWV +062
+HDOWKDQG6DIHW\([HFXWLYHD7KH6WRUDJHRI/LTXLG+LJK/HYHO:DVWHDW%1)/6HOODILHOG $
UHSRUWE\+01XFOHDU,QVWDOODWLRQV,QVSHFWRUDWH +HDOWKDQG6DIHW\([HFXWLYH
+HDOWK DQG 6DIHW\ ([HFXWLYH E +HDOWK DQG 6DIHW\ ([HFXWLYH +6( 7HDP ,QVSHFWLRQ RI WKH
&RQWURODQG6XSHUYLVLRQRI2SHUDWLRQVDW%1)/¶V6HOODILHOG6LWH+HDOWKDQG6DIHW\([HFXWLYH
0DJQR[IXHO
UHSURFHVVLQJ
SODQW
7KHUPDO
R[LGHIXHO
UHSURFHVVLQJ
SODQW
7+253
/LTXLG
+/:
(YDSRUDWLRQ
DQGVWRUDJHRI
+/:LQ
+$676
,QFRUSRUDWLRQRI
+/:LQWRJODVVLQ
WKHYLWULILFDWLRQ
SODQW
6WRUDJHRIYLWULILHG
+/:LQWKHYLWULILHG
SURGXFWVWRUH
/LTXLG
+/:
)LJXUH
/LTXLG+LJK/HYHO:DVWH+/:3URGXFWLRQDQG0DQDJHPHQWDW6HOODILHOG
7DEOH
7\SLFDO,VRWRSLF,QYHQWRU\RID1HZ+$67
,VRWRSH
$FWLYLWLHV%TPO
=U
1E
5X
6E
&V
&V
&H
(X
(X
6U
$P
&P
&P
7DEOH
&RPSDULVRQRI,VRWRSLF,QYHQWRU\LQJLJDEHFTXHUHOV
,VRWRSH
5HOHDVHGIURP
&KHUQRE\O
,Q+$67V
,Q+$67V
&V
&V
6U
7DEOH
+HDW/RDGLQJRI+LJKO\$FWLYH6WRUDJH7DQNV
+$67
+HDW&RQWHQWN:
6SDUH
6SDUH
6SDUH
6SDUH
6SDUH
6SDUH
6SDUH
'HVLJQHG+HDW5HPRYDO&DSDFLW\
N: