One of the first American Securitization Forum (ASF) subcommittees being organized is the Accounting and Tax Subcommittee. An immediate, high priority item for that group is to provide input to FASB on their SPE Consolidations project from a broad securitization industry perspective.

The subcommittee will be coordinating its activities closely with other industry groups that are also directly engaged in this project - including The Bond Market Association (BMA), which is participating in a joint accounting policy group along with International Swaps and Derivatives Association (ISDA) and the Securities Industry Association (SIA) - to ensure consistency and cohesion in the industry's approach and specific recommendations to the FASB on this important issue.

The subcommittee expects to work with these and other industry groups, as well as with ASF member organizations, in "field testing" some of FASB's tentative decisions on the project, and to accumulate relevant market-based information that can be presented to FASB to assist them in their continuing deliberations and decision-making.

Following is a list of bullet points that reflect the joint BMA/ISDA/SIA working group's principal views and concerns relating to the process, direction and desired outcome of this project. Although the ASF and its Accounting and Tax Subcommittee have not yet deliberated these specifics, they reflect common, emerging views within the industry, including those of many member firms of the ASF who are also involved in the other trade groups mentioned above:

Procedural points:

*FASB should proceed with caution and not overreact to the current environment. Issues around consolidation of SPEs will have broad economic and regulatory impacts. FASB should engage industry experts every step of the way.

*FASB should not ignore issues around financial statement presentation of consolidated SPEs. For example, P&L volatility could result since SPE assets could be MTM, but liabilities would not. Also, financial statement ratios may be impacted, etc.

Technical points:

*The guidance should have explicit recognition that not every SPE has a Primary Beneficiary; thus not all SPEs should be consolidated. This can happen when there are many parties who share in the risks and rewards and control. In such circumstances, each party should be able to separately account for their individual exposure, rights and obligations.

*QSPEs should not be consolidated by anyone. The ability to securitize assets under a QSPE model could be significantly impacted if any party (aside from the transferor) to the transaction would now have to consolidate under the new rules.

*The 10% equity requirement is arbitrary and too high. Requirement should allow for deviations based on substance of transaction or should be based on a different measure like economic loss/risk.

*Legal form equity should not be the focus. In many deals subordinated debt can function as equity. Consider a separate model for securitization of financial assets vs. non-financial assets, dual consolidation is completely inappropriate

A search is currently underway for the position of Executive Director of the newly formed ASF. The Executive Director will report directly to the five-member executive board.

"The Executive Director is the key staff position for the ASF," said Vernon Wright, the group's chairman. "We're now intensively searching for a seasoned securitization market professional to work with the ASF's membership to carry our agenda forward," he added.

Candidates need a minimum of six years of experience in the legal, banking or broker dealer aspects of securitization markets. Responsibilities will include perusing projects in the legal, regulatory, accounting, capital and tax treatment of securitizations, as well as the informing of internal and external constituencies.

Interested parties should call (212) 440-9403 or submit a resume to:

George Miller

Deputy General Counsel, Bond Market Association

40Broad St.

New York, NY 10004-2373

This is the inaugural installment in what will be a monthly contribution in the ASR on behalf of the American Securitization Forum. Following one of the bi-monthly ASF meetings, a synopsis of the plans discussed will be represented in this page, which is compiled by the ASF. The views represented do not necessarily represent those of the individual members of the ASF, ASR or Thomson Financial.

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.