It's no secret that some of the hottest public exchanges on the state of the securitization market have involved a poker-faced Dan Stachel, head of fixed-income research at State Street Global Advisors, typically during panel discussions at ABS conferences. This year, the American Securitization Forum has nabbed him to conduct its investor-focused discussion at the organization's first annual conference this month in Scottsdale, Ariz.
Heading a panel focused on market standards and practices, Stachel and his panel intend to grade market participants. While panelists will air their own personal views, audience members will be allowed to vote in real time during the discussion and walk away with a report card on how industry participants - underwriters, issuers, investors, servicers, rating agencies, attorneys and trustees - fare on a group-by-group basis. Individual entities will not be graded.
It is believed that attendee sentiment will help generate change in the market, aiding the creation of new standards or documentation, for example, through the ASF. One action may involve trustees, for example.
"The idea is to create a cycle whereby at the next ASF conference we would also deal with the same process and then tie together previous report cards with the current one and judge whether progress had been made or not," Stachel explained.
Going into the discussion, Stachel personally isn't giving high marks to many market participants. Investors, as a group - of which he is a part - fared no better than a C' on his personal bell curve.
"A large share of investors passively accept what they're given. I believe investors will get the issuers they deserve; if they don't demand more, they're not going to get more," Stachel said. "If they accept the status quo, there's no reason to expect people to change on their own free will."
Investment bankers are an interesting group, rating higher than investors on Stachel's scale, being fundamentally intermediaries, he said. However, the performance of trustees over the last year or so seems to warrant a grade of D, or worse, in his mind.
"It's a group that has shocked me. I'm still fundamentally mystified about the lack of certain controls... in terms of collateral tests and cash movement from reserve accounts," Stachel noted. "I'm not aware of operating guidelines or policies that trustees have promulgated as a group. There's been a significant decline in how investors I talk to feel about trustees," he added.
Given that temperatures run high over a topic like trustee performance, for example, the ASF hopes to walk away with feedback from its conference that will lead to discernable action.
The ASF has initiated a "Model Prospectus" task force, headed by Kenneth Fischbach of MBNA Corp. and Anthony Thompson of Deutsche Bank Securities. Expected to develop from that task force is a model disclosure for what the trustee role is in a given transaction.
"Trustees actually have a bill of fare that they present to issuers who select what it is they want the trustee to do. However, there is no disclosure of that in any prospectus that I've seen. Clearly understanding what the trustee is on the hook for would certainly make a difference in terms of assessing their role in a given situation," said Stachel.
"Clearly, not everyone will agree on all these issues. But at least there is the potential [for industry action]," said George Miller, senior vice president and deputy general counsel at TBMA. "Through Dan's committee, we have seen evidence of that occurring already - an ACBP reporting standard, an asset-backed syndicate best practices standard, and development of guidelines for warning signs of distressed transactions and how to avoid them."
When it comes to grading asset classes' performance in 2004 and how investors can avoid blow-ups, Stachel offered this advice: "You want [assets] like credit cards, prime auto, better HELs and residential mortgage paper. You want quality collateral from strong servicers. If you're in that zone, the number of surprises you'll have to deal with are much smaller," said Stachel.
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