Last Thursday, the American Securitization Forum submitted its commentary to Financial Standards Accounting Board regarding the consolidation project exposure draft. The deadline for submission is this Friday, Aug. 30
As expected, via the 29-page document, the ASF highlights the overly-broad and, in some places, ambiguous language of the draft, and argues that the new rules - should they closely resemble this proposal - would materially threaten the securitization markets, particularly CDOs, multi-seller ABCP conduits, and credit-linked notes.
The ASF is also concerned with the timing of implementation.
While the ASF supports FASB's concern over enterprises deliberately hiding assets by not consolidating them, the forum argues that FASB should be equally weary of "false positives" - or forced consolidation where it's not substantively appropriate, as may be the case with risk dispersing securitizations.
"We really support the goal of increased transparency, but we believe that the draft, as proposed, would not contribute to increased transparency," said Dwight Jenkins, executive director of the ASF.
Further, the ASF believes "the Proposal should be revised so that, except in unusual circumstances, no one will be required to consolidate."
In its conclusion, the ASF offers an example of an investment manager, with $600 million in total assets, believing it would be required to consolidate $1.2 billion in CDOs, though its total investment in those CDOs is only $13 million.
"Consolidation would triple this company's assets overnight on April 1, 2003," the ASF writes. "We urge FASB to consider the consequences of this type as it finalizes its interpretation."
The ASF also expresses its concerns regarding Emerging Issues Task Force (EITF) 02-12, which addresses permitted activities of FAS140 qualifying-SPEs. Apparently, EITF 02-12 could threaten certain master trust structures currently shielded from consolidation via QSPE status.
To download a copy of the ASF letter, go to www.americansecuritization.com