Variable Interests in Specified Assets of a VIE

As discussed above, a variable interest in specified assets of a VIE might not be an interest in the VIE itself. Variable interests in specified assets are considered variable interests in the VIE only if: (1) the specified assets represent more than half of the assets in the VIE on a fair value basis or (2) the specified assets represent half or less of the assets of the VIE, but the holder of those interests also holds another variable interest in the VIE as a whole. If the specified assets represent half or less of the assets of the VIE and the holder does not own another variable interest in the VIE as a whole, then the interests are considered variable interests in specified assets but not variable interests in the VIE. Accordingly, holders of such interests are not primary beneficiaries, and the expected losses and residual returns of the holders of such interests are excluded from the expected losses and expected residual returns used to test whether the entity is a VIE and whether another holder of interests is the primary beneficiary (see Example 3 below and Example 5).

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