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 December 21, 2011. The filing addresses a material definitive agreement 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, debt levels, or liquidity ratios. The document focuses exclusively on the execution of a Credit Support Annex (CSA) and the associated collateral posting requirements under an ISDA Master Agreement.
Material Changes
- Rating Downgrade: 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."
- Contractual Trigger: The downgrade triggered provisions in the ISDA Master Agreement between Merrill Lynch Capital Services, Inc. (MLCS) and the Trust, requiring MLCS to either secure a guaranty from a highly-rated entity or find a replacement counterparty.
- Collateral Requirement: As MLCS had not secured a replacement counterparty within 30 days of the downgrade, MLCS was required to post collateral to the Trust. The collateral amount is defined as the greatest of: (1) the Exposure calculated under the CSA, (2) the next MLCS Payment Amount, or (3) one percent of the then current notional amount of the confirmation.
- Agreement Execution: On December 21, 2011, MLCS executed the CSA to supplement the ISDA Master Agreement to facilitate the posting of collateral.
Outlook, Risks, and Management Commentary
MLCS is diligently working to find a suitable replacement counterparty to satisfy the rating requirements. On December 19, 2011, MLCS received written confirmation from S&P that the execution of the CSA would not result in the withdrawal or downgrading of the rating of the trust certificates. The filing includes a standard disclaimer stating that neither the depositor nor the trustee participated in the preparation of the underlying securities issuer's reports or made due diligence inquiries regarding their financial condition.
Investor Verification Checklist
- Verify the current credit rating of Merrill Lynch & Co., Inc. and whether a replacement counterparty has been secured.
- Confirm the specific amount of collateral posted by MLCS to the Trust.
- Review the full text of the Credit Support Annex (Exhibit 10.1) for detailed exposure calculations.
- Monitor periodic reports from The Goldman Sachs Group, Inc. for information regarding the underlying securities held by the Trust.