In an investor presentation, General Electric said it has consolidated $50 billion in assets and liabilities associated with the implementation of FIN 46. Of that, roughly $36 billion is associated with securitization, which presumably includes its ABCP conduit Edison Asset Securitization.
According to Moody's Investors Service, Edison was at about $31.5 billion as of March.
The company describes consolidation as the "preferred method," adding that the move will lower its earnings per share by $.04, reflected as a "non-cash transition charge."
"[The questions is], Will this put pressure on other ABCP program sponsors to also consolidate?'" said Mark Adelson of Nomura Securities, who provided a copy of the presentation. "Other may say, Who are we to go against GE?"
While GE seemed to shrug this off with minimal mention, Ford Motor Credit Co., in its investor presentation last week, was less subtle. The company made it clear in almost every instance that while it has included its $11.3 billion FCAR conduit in its total debt calculation, that debt is "payable solely out of collections of receivables underlying FCAR's assets and is not the obligation of Ford Credit."
In fact, Ford suggests investors continue to view FCAR as off-balance sheet for a true representation of its loss-to-receivables ratio when comparing the figure with 2002.
Cited from Ford's 8-K filing with the Securities and Exchange Commission last week:
"The financial measure that is most directly comparable to these loss-to-receivables ratios and that is calculated and presented in accordance with GAAP is the on-balance sheet credit-loss ratio excluding losses on the reacquired FCAR receivables, which GAAP-based ratio is disclosed in a footnote [in the slide presentation]. We believe that the use of the non-GAAP on-balance sheet credit-loss ratio is useful to our investors because it provides a more complete representation of our actual on-balance sheet loss performance."
Here, Ford describes its loss-to-receivables ratio as 1.50% for 2Q03 when including FCAR, versus 1.44% excluding FCAR. For the same quarter last year, the company was at 1.58%. Similarly, for 2Q03, Ford Motor Credit reports $146.2 billion in debt counting FCAR's $11.3 billion - or $134.9 billion without FCAR - versus $142.1 billion for the 2Q02 reporting period.
Meanwhile, equity researchers at Credit Suisse First Boston released an 83-page report last week, entitled FIN 46: New Rule Could Surprise Investors, which offers estimates on the impact the new guidelines will have on different types of companies. In appendices, CSFB offers five comprehensive lists encompassing 500 companies, broken down as follows: 138 companies that expect no impact; 128 that make no mention of FIN 46; 57 companies that could be impacted but have provided no estimates; 92 companies that have offered estimated impacts; and 85 companies reporting immaterial impacts.
The aim of the piece is to prepare investors for this shakedown, which is indeed a concern expressed by the securitization community, particularly on the ABCP side.
In this light, CSFB lists the following candidates for consolidation associated at least in part with ABCP (assuming no restructuring): Bank of America ($24.5 billion), Bank One Corp. ($39.5 billion), DuPont De Nemours ($798 million), FleetBoston Financial ($7.9 billion), Ford Motor Co. ($10.7 billion), General Electric ($43.6 billion), J.P. Morgan Chase ($25 billion), Keycorp ($1.9 billion), PNC Financial Services Group ($5.83 billion), State Street Corp. ($11.1 billion), Suntrust Banks ($3.8 billion) and Wachovia Corp. ($19.2 billion).
Update on 140
Separately, the ranking Democrat in the Senate Permanent Subcommittee on Investigations, Sen. Carl Levin, is author of the first comment letter to be posted on FASB's Web site concerning the proposed amendment to FAS 140.
Recall that the subcommittee issued a detailed report in January on the abuses of Enron Corp. and how it used existing GAAP, and specifically some structures that passed muster under FAS 140, to hide its debt (see ASR 1/13/03).
It's not surprising that Levin is 100% in support of tightening up the criteria for SPEs desiring QSPE status. In fact, Levin reemphasizes the dangers of the existing QSPE guidelines in facilitating Enron-like transactions. Levin recommends FASB take an even stronger stance on a few fronts.
Meanwhile, Citibank has apparently completed the restructuring of two additional ABCP conduits, both of which have issued subordinated investments to satisfy the non-consolidation criteria of FIN 46.
In its two-week roundup, Moody's Investors Service reported that Charta and CAFCO - both authorized to issue up to $15 billion in ABCP - had converted to Delaware limited liabilities companies and had issued subordinated tranches. Moody's confirmed the ratings P-1'.
At March, Charta had roughly $5 billion outstanding and CAFCO had just under $9 billion, according to Moody's.