A proposal from the Securities and Exchange Commission designed to increase transparency for ABS investors could require issuers to include static pool statistics in prospectuses, which had generally been deemed unnecessary.
The regulator hopes to issue a proposal sometime in June, which would then be subject to a 60-day comment period. The new rules will likely become effective sometime this year, said Stephen Kudenholdt, head of structured finance at Thacher Proffitt & Wood.
"The SEC is definitely focusing on requiring some amount of information from pools sold by the same seller," Kudenholdt said. "Issuers and underwriters have been of the view that prior pool information is not a good predictor." In addition, this type of information is often already publicly available either through EDGAR or on Web sites maintained by the trustee or servicer.
The details are still spotty, and some issuers are withholding judgement until more information is available. "The challenge we have today is that we are looking at general comments that have been made with very little detail, and so we are speculating," said MBNA Corp. Chairman and Asset Securitization Forum Executive Committee member Vernon Wright. "If we're looking at it on a securitization basis, static information is more informative if it is on a master trust type of arrangement."
Questions have also been raised regarding a provision that would require issuers to file a separate 8-K or 10-K for each deal rather than combining them all on a single form, as is accepted practice today. Some issuers already report using separate forms, Kudenholdt said, particularly those with broker dealer affiliates. However, for those who don't do so the costs of separating them could add up. "For an issuer that currently reports 100 or 200 different series on a single form 8-K or 10-K, to redo those reports so that there is a separate one for each trust would be a major administrative burden," said Kudenholdt.
In addition, the new rules would require the issuer to provide more information to investors about the servicer's ability to service the loan. However, the rule will likely stop short of asking for the servicer's financial statements, Kudenholdt said.
Despite these concerns, most within the industry are rallying behind the SEC's efforts to enhance disclosure. Broadly speaking, issuers hope the new rules will eliminate the gray areas by providing concrete guidance relating to term sheets and what kind of information can be given out during the offering process. "Nobody wants to make a judgment call on their reporting and disclosure practices," Kudenholdt said.
The ASF supports the SEC's approach and will continue working with the commission going forward to provide better information to investors, Wright said.
"There needs to be a way of providing information to investors so that they can easily find the information they need," Wright said. "To that end, there needs to be a compromise between the issuers' requirements and the investors' need for timely and accurate information."