Exhibit 10.2
ISDA®
International Swaps and Derivatives Association, Inc.
NOVATION AGREEMENT
dated as of September 28, 2006 among:
THE ROYAL BANK OF SCOTLAND PLC. (the “Remaining Party”),
NOVASTAR MORTGAGE, INC. (the “Transferor”)
AND
NOVASTAR MORTGAGE SUPPLEMENTAL INTEREST TRUST, SERIES 2006-5 (the “Transferee”).
The Remaining Party and NovaStar Financial, Inc. (“NFI”) are parties to a 1992 ISDA Master dated as of June 30, 2005 (the “NFI/RBS Master Agreement”). The Remaining Party and NFI originally entered into certain transactions (each an “Old Transaction”) under the NFI/RBS Master Agreement, each evidenced by a Confirmation (an “Old Confirmation”) with reference number IRG16054239, respectively, attached hereto as Exhibit I. The Old Transactions were transferred by novation to the Transferor from NFI pursuant to the Novation Agreement dated July 19, 2006, among NFI, the Remaining Party and the Transferor, made subject to a 1992 ISDA Master Agreement dated as of July 19, 2006, between the Remaining Party and the Transferor (the “Old Agreement”) and assigned the following internal reference number IRG16054239.
The Remaining Party and the Transferee are simultaneously entering into a 1992 ISDA Master Agreement dated as of the date hereof in the form attached hereto as Exhibit II (the “New Agreement”).
With effect from and including September 28, 2006 (the “Novation Date”) the Transferor wishes to transfer by novation to the Transferee, and the Transferee wishes to accept the transfer by novation of, all the rights, liabilities, duties and obligations of the Transferor under and in respect of each Old Transaction, with the exception of the Excluded Rights and Obligations referred to below, with the effect that the Remaining Party and the Transferee enter into a new transaction (each a “New Transaction”) between them having terms identical to those of each Old Transaction, subject to the same exceptions and as more particularly described below.
The Remaining Party wishes to accept the Transferee as its sole counterparty with respect to the New Transactions.
The Transferor and the Remaining Party wish to have released and discharged, as a result and to the extent of the transfer described above, their respective obligations under and in respect of the Old Transactions.
Accordingly, the parties agree as follows: —
| 1. | Definitions. |
Terms defined in the ISDA Master Agreement (Multicurrency-Cross Border) as published in 1992 by the International Swaps and Derivatives Association, Inc. (the “1992 ISDA Master Agreement”) are used herein as so defined, unless otherwise provided herein. For purposes of this Novation Agreement, “Excluded Rights and Obligations” means all obligations of each of the Transferor and the Remaining Party to Transfer (as defined in the Credit Support Annex to the Old Agreement) Eligible Collateral (as so defined) in respect of the Old Transactions and all related rights of the Remaining Party and the Transferor under the Old Agreement.
| 2. | Transfer, Release, Discharge and Undertakings. |
Subject to the execution and delivery of the New Agreement by each of the parties thereto to the other, with effect from and including the Novation Date and in consideration of the mutual representations, warranties and covenants contained in this Novation Agreement and other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged by each of the parties):
| (a) | subject to Section 2(d) of this Novation Agreement, the Remaining Party and the Transferor are each released and discharged from further obligations to each other with respect to each Old Transaction and their respective rights against each other thereunder are cancelled, provided that such release and discharge shall not affect any rights, liabilities or obligations of the Remaining Party or the Transferor with respect to payments or other obligations due and payable or due to be performed prior to the Novation Date, and all such payments and obligations shall be paid or performed by the Remaining Party or the Transferor in accordance with the terms of the Old Transactions; |
| (b) | in respect of each New Transaction, the Remaining Party and the Transferee each undertake liabilities and obligations towards the other and acquire rights against each other identical in their terms to each corresponding Old Transaction (and, for the avoidance of doubt, as if the Transferee were the Transferor and with the Remaining Party remaining the Remaining Party, save for the Excluded Rights and Obligations and any other rights, liabilities or obligations of the Remaining Party or the Transferor with respect to payments or other obligations due and payable or due to be performed prior to the Novation Date). For the sake of clarity, all references to Independent Amounts shall be deemed deleted from the Confirmations for each New Transaction; |
| (c) | each New Transaction shall be governed by, form part of, and be subject to the New Agreement and the relevant Old Confirmation (which, in conjunction and as deemed modified to be consistent with this Novation Agreement, shall be deemed to be a Confirmation between the Remaining Party and the Transferee), and the offices of the Remaining Party and the Transferee for purposes of each New Transaction shall be their offices at their addresses for notices provided for in the New Agreement; and |
| (d) | on the Novation Date, the Remaining Party shall transfer all of the Posted Collateral (as defined in the Credit Support Annex to the Old Agreement) held by it in respect of the Old Transactions to the account or accounts of the Transferor identified by it by notice given to the Remaining Party as provided in the Old Agreement, and the Transferor shall transfer all Posted Collateral held by it in respect of the Old Transactions to the account or accounts of the Remaining Party identified by it by notice given to the Transferor as provided in the Old Agreement, in each case together with all Interest Amount and Distributions thereon (as so defined). The Remaining Party’s or the Transferor’s failure to effect these transfers will continue to constitute Potential Events of Default and may constitute Events of Default under the Old Agreement notwithstanding the transfer by novation contemplated herein. |
| 3. | Representations and Warranties. |
| (a) | On the date of this Novation Agreement: |
| (i) | Each of the parties makes to each of the other parties those representations and warranties set forth in Section 3(a) of the 1992 ISDA Master Agreement with references in such Section to “this Agreement” or “any Credit Support Document” being deemed references to this Novation Agreement alone. |
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| (ii) | The Remaining Party and the Transferor each makes to the other, and the Remaining Party and the Transferee each makes to the other, the representation set forth in Section 3(b) of the 1992 ISDA Master Agreement, in each case with respect to the Old Agreement or the New Agreement, as the case may be, and taking into account the parties entering into and performing their obligations under this Novation Agreement. |
| (iii) | Each of the Transferor and the Remaining Party represents and warrants to each other and to the Transferee that: |
| (A) | it has made no prior transfer (whether by way of security or otherwise) of the Old Agreement or any interest or obligation in or under the Old Agreement or in respect of any Old Transaction; and |
| (B) | without prejudice to the obligations of the Remaining Party and the Transferor referred to in Section 2(d) of this Novation Agreement, as of the Novation Date, all obligations of the Transferor and the Remaining Party under each Old Transaction required to be performed before the Novation Date have been fulfilled. |
| (iv) | Each party represents to each of the other parties: — |
| (A) | Non-Reliance. It is acting for its own account, and it has made its own independent decisions to enter into this Novation Agreement and as to whether this Novation Agreement is appropriate or proper for it based upon its own judgment and upon advice from such advisers as it has deemed necessary. It is not relying on any communication (written or oral) of the other parties as investment advice or as a recommendation to enter into this Novation Agreement; it being understood that information and explanations related to the terms and conditions of this Novation Agreement shall not be considered investment advice or a recommendation to enter into this Novation Agreement. No communication (written or oral) received from any of the other parties shall be deemed to be an assurance or guarantee as to the expected results of this Novation Agreement; |
| (B) | Assessment and Understanding. It is capable of assessing the merits of and understanding (on its own behalf or through independent professional advice), and understands and accepts, the terms, conditions and risks of this Novation Agreement. It is also capable of assuming, and assumes, the risks of this Novation Agreement; and |
| (C) | Status of Parties. None of the other parties is acting as a fiduciary for or an adviser to it in respect of this Novation Agreement. |
| (b) | The Transferor makes no representation or warranty and does not assume any responsibility with respect to the legality, validity, effectiveness, adequacy or enforceability of any New Transaction or the New Agreement or any documents relating thereto and assumes no responsibility for the condition, financial or otherwise, of the Remaining Party, the Transferee or any other person or for the performance and observance by the Remaining Party, the Transferee or any other person of any of its obligations under any New Transaction or the New Agreement or any document relating thereto and any and all such conditions and warranties, whether express or implied by law or otherwise, are hereby excluded. |
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| 4. | Counterparts. |
This Novation Agreement (and each amendment, modification and waiver in respect of it) may be executed and delivered in counterparts (including by facsimile transmission), each of which will be deemed an original.
| 5. | Costs and Expenses. |
The parties will each pay their own costs and expenses (including legal fees) incurred in connection with this Novation Agreement and as a result of the negotiation, preparation and execution of this Novation Agreement.
| 6. | Amendments. |
No amendment, modification or waiver in respect of this Novation Agreement will be effective unless in writing (including a writing evidenced by a facsimile transmission) and executed by each of the parties or confirmed by an exchange of telexes or electronic messages on an electronic messaging system and subject to the Rating Agency Condition (as defined in the New Agreement).
| 7. | (a) | Governing Law. |
This Novation Agreement will be governed by and construed in accordance with the laws of the State of New York without reference to the conflict of laws provisions thereof.
| (b) | Jurisdiction. |
The terms of Section 13(b) of the 1992 ISDA Master Agreement shall apply to this Novation Agreement with references in such Section to “this Agreement” being deemed references to this Novation Agreement alone.
| (c) | Not Acting in Individual Capacity. |
Deutsche Bank National Trust Company is signing this Novation Agreement solely in its capacity as Trustee of the Transferee under the Pooling and Servicing Agreement among NovaStar Mortgage Funding Corporation, NovaStar Mortgage, Inc., U.S. Bank National Association, and Deutsche Bank National Trust Company dated as of September 1, 2006 (the “Pooling and Servicing Agreement”) and in the exercise of the powers and authority conferred and vested in it thereunder and not in its individual capacity. It is expressly understood and agreed by the parties hereto that (i) each of the representations, undertakings and agreements herein stated to be those of Transferee is made and intended for the purpose of binding only the Transferee, (ii) nothing herein contained shall be construed as creating any liability for Deutsche Bank National Trust Company, individually or personally, to perform any covenant (either express or implied) contained herein stated to be those of Transferee, and all such liability, if any, is hereby expressly waived by the parties hereto, and such waiver shall bind any third party making a claim by or through one of the parties hereto, and (iii) under no circumstances shall Deutsche Bank National Trust Company be liable for the breach or failure of any obligation, representation, warranty or covenant made or undertaken by the Transferee under this Novation Agreement. All persons having any claim against the Trustee reason of the Transactions contemplated by this Novation Agreement shall look only to the assets of NovaStar Mortgage Supplemental Interest Trust, Series 2006-5 (subject to the availability of funds therefor in accordance with the Flow of Funds as set forth in Article IV of the Pooling and Servicing Agreement) for payment or satisfaction thereof.
The foregoing may not be construed to give to Majority Certificateholders any rights under this Novation Agreement.
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| (d) | Pooling and Servicing Agreement. |
Capitalized terms used in this Novation Agreement that are not defined herein and are defined in the Pooling and Servicing Agreement shall have the respective meanings assigned to them in the Pooling and Servicing Agreement.
| (e) | Agency Role of Greenwich Capital Markets, Inc. In connection with this Novation Agreement, Greenwich Capital Markets, Inc. has acted as agent on behalf of the Remaining Party. Greenwich Capital Markets, Inc. has not guaranteed and is not otherwise responsible for the obligations of the Remaining Party under this Agreement. |
| (f) | Calculation |
Promptly after each Reset Date, but in no event later than three New York Business Days prior to each related Distribution Date, the Calculation Agent shall deliver the reset notice in writing via mail or facsimile to the Trustee at the address provided in the notices portion of the New Agreement.
| (g) | Account Details |
| Remaining Party: | The Royal Bank of Scotland | |
Bank: JPMorgan Chase Bank | ||
ABA No.: 021000021 | ||
Account No.: 400930153 | ||
Attention: Financial Markets Fixed Income and Interest Rate Derivative Operations, London | ||
SWIFT Code: SWIFT RBOSGB2RTCM with JPMorgan Chase Bank, New York CHASUS33 | ||
| Transferee: | Deutsche Bank National Trust Company | |
ABA # 021001033 | ||
Acct # 01419663 | ||
Acct Name NYLTD Funds Control - Stars West | ||
Ref: Trust Administration - Novastar 2006-5, Hedge confirm # [ ] | ||
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IN WITNESS WHEREOF the parties have executed this Novation Agreement on the respective dates specified below with effect from and including the Novation Date.
| THE ROYAL BANK OF SCOTLAND PLC | NOVASTAR MORTGAGE, INC. | |||||
| By: | Greenwich Capital Markets, Inc., its agent | |||||
| By: | /s/ Deborah Pfeifer | By: | /s/ David L. Farris | |||
| Name: | Deborah Pfeifer | Name: | David L. Farris | |||
| Title: | Vice President | Title: | Vice President | |||
NOVASTAR MORTGAGE SUPPLEMENTAL INTEREST TRUST, SERIES 2006-5 | ||
By: Deutsche Bank National Trust Company, as Trustee under the Pooling and Servicing Agreement, acting not in its individual capacity, but solely in its capacity as Trustee to NovaStar Mortgage Supplemental Interest Trust, Series 2006-5 | ||
| By: | /s/ Melissa Wilman | |
| Name: | Melissa Wilman | |
| Title: | Vice President | |
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Exhibit I
[Old Hedge Confirmations attached behind this page]
Our Reference: IRG16054239
| ||
Global Banking & Markets 280 Bishopsgate London EC2M 4RB
| ||
| 10 August 2006 |
Novastar Financial Inc
Kansas City
Dear Sirs,
AMENDMENT
This Confirmation supersedes and replaces any previous communication received from
ourselves in relation to the below referenced transaction
Our Reference: IRG16054239
Re: USD 80,000,000.00 Interest Rate Cap
The purpose of this document is to set forth the terms and conditions of the transaction entered into between The Royal Bank of Scotland plc and yourselves on the Trade Date specified below (the “Transaction”). This document constitutes a “Confirmation” as referred to in the Agreement specified below.
The Definitions and provisions contained in the 2000 ISDA Definitions, as published by the International Swaps and Derivatives Association, Inc., are incorporated into this Confirmation. In the event of any inconsistency between those definitions and provisions and this Confirmation, this Confirmation will govern
This Confirmation supplements, forms part of, and is subject to, the 1992 ISDA Master Agreement dated as of 30 June 2005, as amended and supplemented from time to time (the “Agreement”), between yourselves and The Royal Bank of Scotland plc. All provisions contained in the Agreement govern this Confirmation except as expressly modified below.
The terms of the particular Transaction to which this Confirmation relates are as follows:
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Our Reference:IRG16054239
| Notional Amount | USD 80,000,000.00 | |
| Trade Date | 26 July 2006 (time of trade is available upon request) | |
| Effective Date | 25 August 2006 | |
| Termination Date | 25 August 2008 subject to adjustment in accordance with the Modified Following Business Day Convention | |
| Fixed Amounts | ||
| Fixed Amount Payer | Novastar Financial Inc | |
| Fixed Amount Payer Payment Date | The 25th day of each month, commencing 25 September 2006 to and including the Termination Date, subject to adjustment in accordance with the Modified Following Business Day Convention, with No Adjustment to period end dates. | |
| Fixed Rate Day Count Fraction | 30/360 | |
| Business Days | New York | |
| Fixed Amount | .23100 pet | |
| Floating Amounts | ||
| Floating Rate Payer | The Royal Bank of Scotland plc | |
| Floating Rate Payer Payment Dates | The 25th day of each month, commencing 25 September 2006 to and including the Termination Date, subject to adjustment in accordance with the Modified Following Business Day Convention | |
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Our Reference:IRG16054239
| Cap Rate | 5.50 pet | |
| Floating Rate Option | USD-LIBOR-BBA | |
| Floating Rate Day Count Fraction | Actual/360 | |
| Designated Maturity | 1 month | |
| Reset Dates | The first day of each Calculation Period | |
| Business Days | New York | |
| Calculation Agent | The Royal Bank of Scotland plc or, if different, as stated in the Agreement | |
| Account Details | ||
| Payments to The Royal Bank of Scotland plc | As per our Standard Settlement Instructions | |
| Payments to Novastar Financial Inc | Any payments due to yourselves in relation to this Transaction, where The Royal Bank of Scotland plc currently hold your relevant Standard Settlement Instructions, these Will be applied to this Transaction. If these are not currently held by ourselves or are not relevant to this Transaction, please advise. | |
| Offices | ||
| The Office of The Royal Bank of Scotland plc for the Transaction is | London | |
| The Office of Novastar Financial Inc for the Transaction is | Kansas City | |
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Each party represents to the other party on the Trade Date of this Transaction that (in the absence of Our Reference:IRG16054239
a written agreement between the parties that expressly imposes affirmative obligations to the contrary for this Transaction):
(a)Non Reliance.It is acting for its own account, and it has made its own independent decisions to enter into this Transaction and as to whether this Transaction is appropriate or proper for it based upon its own judgement and upon advice from such advisers as it has deemed necessary. It is not relying, and has not relied, on any communication (written or oral) of the other party as investment advice or as a recommendation to enter into this Transaction; it being understood that information and explanations related to the terms and conditions of this Transaction shall not be considered investment advice or a recommendation to enter into this Transaction, no communication (written or oral) received from the other party shall be deemed to be an assurance or guarantee as to the expected results of this Transaction.
(b)Assessment and Understanding.It is capable of assessing the merits of and understanding (on its own behalf or through independent professional advice), and understands and accepts, the terms, conditions and risks of this Transaction. It is also capable of assuming, and assumes, the risks of this Transaction.
(c)Status of Parties.The other party is not acting as a fiduciary for or an adviser to it in respect of this Transaction
This Transaction has been entered into between yourselves and The Royal Bank of Scotland plc a member of the London Stock Exchange, authorised and regulated by the Financial Services Authority.
This Confirmation is in final form and supersedes all previous Confirmations and communications in respect of this Transaction. No hard Copy will follow.
In the event that you disagree with any part of this Confirmation, please notify us via the contact details below, so that the discrepancy may be quickly resolved. Please note that our telephone conversations with you may be recorded.
| Telephone | +44 (0)20 7085 4015 | |
| +44 (0)20 7085 1720 | ||
| +44 (0)20 7085 3459 | ||
| Fax | +44 (0)20 7085 6724 | |
| gbinratesclientconfirmations@rbos.com |
We are pleased to have completed this Transaction and look forward to dealing with you again in the near future.
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Please confirm that the foregoing correctly sets forth the terms of our agreement by a return document to The Royal Bank of Scotland plc substantially to the following effect:
Our Reference:IRG16054239
Re: USD 80,000,000.00 Interest Rate Cap Our Ref: IRG16054239
We acknowledge receipt of your document dated 28 July 2006 with respect to the above—referenced Transaction between The Royal Bank of Scotland plc and Novastar Financial Inc with an Effective Date of 25 August 2006 and a Termination Date of 25 August 2008, and confirm that such document correctly set forth the terms of our agreement relating to the Swap Transaction described therein. Yours faithfully. Novastar Financial Inc. by specify name and title of authorised officer.
Yours sincerely,
| Name | Gaynor Kaye | |
| Title | Authorised Signatory | |
For and on Behalf of The Royal Bank of Scotland plc | ||
Confirmed as of the date first written
| Signed: | /s/ David L. Farris | |
| Name: | David L. Farris | |
| Title: | VP | |
Novastar Financial Inc
Kansas City
Counterparty Deal Reference: CAP123
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Exhibit II
[Form of New Agreement attached behind this page]