Business Context and Reporting Period
This Form 8-K is filed by Merrill Lynch Depositor, Inc. on behalf of PPLUS Trust Series GSC-2. The report date is November 29, 2011. The filing addresses a specific event under Item 8.01 (Other Events) triggered by a credit rating downgrade of the Guarantor, Merrill Lynch & Co., Inc.
Key Financial Metrics
The filing does not provide specific financial metrics such as revenue, profit, cash flow, margins, or debt levels for the Trust. The document focuses exclusively on the credit rating status of the Guarantor and the contractual obligations arising from that status under the ISDA Master Agreement.
Material Changes
On November 29, 2011, Standard & Poor's (S&P) downgraded the short-term debt rating of the Guarantor, Merrill Lynch & Co., Inc., from "A-1" to "A-2". This downgrade falls below the "Minimum Rating" threshold defined in the ISDA Master Agreement between Merrill Lynch Capital Services, Inc. (MLCS) and the Trust.
Outlook, Management Commentary, and Risks
- Contractual Obligations: Due to the downgrade, MLCS is required to either (A) obtain a guaranty from an entity with a rating of at least "A-1" or (B) secure a replacement counterparty with a rating of at least "A-1" to assume MLCS's obligations.
- Collateral Posting: If MLCS cannot satisfy conditions (A) or (B) within 30 days of the downgrade, it must immediately post collateral to the Trust. The collateral amount will be the greatest of: (1) the Exposure calculated under the 1994 ISDA Credit Support Annex, (2) the next MLCS Payment Amount, or (3) one percent of the then current notional amount of the confirmation.
- Current Status: MLCS is currently in the process of finding a suitable entity to satisfy the rating conditions. If unsuccessful, MLCS will execute a Credit Support Annex (CSA) and post the required collateral.
- Rating Protection: Prior to executing a CSA, MLCS must receive written confirmation from S&P that the action will not result in the withdrawal or downgrading of the Trust certificates' rating.
- Underlying Securities: The filing directs investors to The Goldman Sachs Group, Inc.'s periodic reports for information regarding the underlying securities, noting that the depositor and trustee did not participate in the preparation of those documents or conduct due diligence on the issuer's financial condition.
Investor Verification Checklist
- Verify the current credit rating of Merrill Lynch & Co., Inc. and whether it remains below "A-1".
- Confirm whether MLCS has secured a replacement counterparty or guaranty within the 30-day window following the November 29, 2011 downgrade.
- Check for any subsequent filings indicating the posting of collateral or the execution of a Credit Support Annex (CSA).
- Review The Goldman Sachs Group, Inc.'s recent filings for updates on the underlying securities held by the Trust.
- Monitor S&P's official statements regarding the rating of the Trust certificates to ensure no withdrawal or downgrade has occurred.