In ABCP land, the news of the week trickled out of Standard & Poor's structured finance conference held in Orlando, Florida, where Greg Coleman of the Office of the Comptroller of the Currency acknowledged that the federal regulators were drafting some sort of temporary capital relief proposal for banks that could be hindered by the implementation of FIN 46.
"I believe that banks are still going to try to deconsolidate, but this gives everyone a little breathing room," said Maureen Coen, head of ABCP at Credit Suisse First Boston. "I think it's absolutely a positive development."
Coen said even the other members on Coleman's FIN 46 panel seemed surprised by the announcement.
The OCC is in the process of circulating its recommendation to the other regulators, presumably the collective members of the Federal Financial Institutions Examinations Council (FFIEC). By the end of June, an interim rule will be released, which allows banks to treat their ABCP conduits as they do currently, with respect to regulatory capital calculations, through the end of the first quarter 2004. Coleman was not available for comment as of deadline last week.
According to conversations ABS industry leaders had with OCC officials following Coleman's remarks, during the second quarter 2004, the regulators will issue more permanent relief rules, which will eventually be replaced by the adoption of the Basel Accord in the U.S. (2006).
FIN 46, the consolidation guidelines released by the Financial Accounting Standards Board, had been an area of controversy even before the interpretation was finalized in January. In the ABCP sphere, it became pretty clear early on that sponsor banks would bear the brunt of the new rules, bringing the conduit assets onto their balance sheets. The deadline for implementation is June 30.
"What this could do is offer the industry short-term help, and it's a recognition that nobody is really going to be ready to deal with this by the June 30 deadline," said one source. "However, I don't think the idea of regulatory capital relief has really filtered through the industry yet. It will be interesting to see the response."
Coleman's statement at the S&P conference was not the first of its kind, as Coleman has sat on the token FIN 46 panels at several ABS gatherings this year. In the past, he's indicated that the regulators are weary of a potential uneven competitive landscape that a shift in ABCP economics could create between U.S. and foreign banks, however temporary.
The next concern, however, is how fundamental equity analysts are going to react if they see several billion dollars of liabilities suddenly materialize on a balance sheet, regardless of the regulatory capital relief situation.
Along these lines, last week Moody's Investors Service commented on the credit impact of Ford Motor Credit in bringing its ABCP conduit, FCAR, onto its balance sheet. This theoretically will increase Ford's liabilities by close to $10 billion, assuming the conduit was consolidated at present size. As the rating agencies have reiterated since FASB finalized FIN 46, the fundamental credit profiles theoretically should not be impacted by consolidation, because the economics don't change, said Sam Pilcer, head of ABS at Moody's.
Meanwhile, Ford's dealer floorplan single-seller, Motown Notes Program, is structured as a QSPE, and is therefore exempt from the FIN 46 guidelines.
Volume spikes but no one's sure why...
Outstanding asset-backed commercial paper saw its first uptick in monthly volume this year, spiking more than $23 billion to $723 billion, up 3.4% on the month and 0.14% year-over-year, according to data from the Federal Reserve.
Though slight, this marks the first year-over-year increase in volume since December 2002. What's puzzling, however, is that the entire gain is due to a one-week $30 billion surge, from April 23 to April 30. In fact, up until then, outstandings were steadily declining throughout the month, bottoming at $697 billion, below month-end numbers dating back to October 2001.
Industry sources believe the increase was mostly associated with foreign banks tapping U.S. appetite for ABCP, though some pointed to Park Granada, the new single-seller vehicle from Countrywide Home Loans, which accounted for at least $4 billion of April's late figures. The financing provided by Granada was used to pay down unsecured bank debt. The mortgage lender has, at least presently, maintained its existing lines with third party multi-seller conduits, in that assets placed with multi-sellers were not financed as part of Granada's launch.
"My understanding is that the Countrywide paper was gobbled up," said one market source.
Other factors for the end-of-month spike might have included tax season, though money market investors generally have less cash to throw around as consumers tap into their accounts. The idea, however, is that companies might have funded in the ABCP market, as well as the corporate CP market, to counter tax-related cash needs. In April, total CP, rising close to $37 billion, also saw its best month-to-month gain in several years. ABCP currently accounts for about 53.12% of overall commercial paper.
While market players are attributing some of the volume to Countrywide, other areas on the U.S. domestic front have been noticeably slow. Immediately following the one-week spike, a U.S. trader commented that, "I'm not sure what's driving the volume. It's really sort of counter to what we're seeing."
Deborah Seife of Fitch Ratings suggested that, in addition to the foreign-backed paper, conduits with administrators not subject to GAAP accounting might be growing their programs at a more normal pace.
Even with Granada's headline launch, ABCP program termination is still outpacing new conduits, according to statistics from Moody's Investors Service. So far this year, 11 conduits have been terminated in the U.S. and three in Europe, compared to new programs launched: four in U.S., one in Europe and two in Asia. In 2002, there were 22 new U.S. programs, 16 new Europe programs and three new Asia programs, compared to 25, three and one terminations, respectively.
A few new structures
Meanwhile, during a presentation on FIN 46 at the S&P seminar, G. Whitfield McDowell of Banc of America Securities said the bank will introduce two new structures offered through Midway Capital and Kitty Hawk Enterprises, named after two of the best-known aircraft carriers of the United States Navy, reported Christopher DeReza of Thomson Financial's IFR Markets, who attended the conference.
When pressed, McDowell would not elaborate further, but said BofA's goal is to have the vehicles available to the market by June 30. The time- consuming aspect is to find the first-loss investors. The bank expects to have the vehicles rated in the next few weeks.