In last week's redeliberations, the Financial Accounting Standards Board again overturned a tentative decision that has significance to the securitization market, ruling that under most conditions no party will be made to consolidate a qualifying special purpose entity (QSPE). FASB also tentatively ruled that there will be no more deliberations prior to the release of the final interpretation.
"It's a continuation of positive trends coming out of FASB over the past few meetings," said Sam Pilcer, head of ABCP at Moody's Investors Service. "They seem to be leaning back towards the silo concept which moves consolidation away from the bank sponsors. For arbitrage conduits, there's still a pretty big question mark, dependent really on whether or not they can be structured as QPSEs."
Apparently, if a seller in a multi-seller conduit is able to structure through a QSPE, no one will be required to consolidate. As Pilcer said, arbitrage conduits will have more difficulty satisfying some of the conditions if they cannot be structured as QSPEs. For one, they have potential upside, which is not a factor with bank sponsors in multi-sellers (which are fee based). SIVs are also facing a different set of challenges from the multi-sellers.
FASB also reaffirmed the prior week's decision that retained transferor interest should be considered variable interest.
Meanwhile, following the meeting, the Commercial Mortgage Securities Association sent out what might be described as an announcement of celebration. In their words: "This is a 180-degree reversal of FASB's decision at their Oct. 30 meeting which would have resulted in non-transferor B piece investors holding first loss positions in QSPEs being required to consolidate the QSPEs."
Though there had been talk of potential grandfathering for existing SPEs, the board maintained its rule against the idea. SPEs established after the final release are immediately subject to the interpretation, while existing SPEs will be consolidated during the first reporting period after June 15, 2003, said Ernst & Young in their "Accounting Alert" commentary.
According to an industry source, the FASB's Chairman Robert Herz, who had not until recently revealed all of his views on SPE consolidation, has indicated a bias toward non-consolidation for bank multi-seller vehicles.
While the majority of ABCP players seem to accept this as a positive, sideline non-bank players that were hoping to exercise their non-reliance on Generally Accepted Accounting Principals (GAAP) are not as impressed with the tentative changes from the exposure draft. At least one source has called this "successful bank lobbying."
"The board had received written requests from certain constituents that the board re-expose the document for another public comment period, due to the extraordinary amount of changes that the board has recently made to the guidance that was in the exposure draft," Deloitte & Touche's Marty Rosenblatt wrote in his meeting comments. "The board unanimously rejected the idea of re-exposure, but acknowledged that at some point a near-final draft would be made available for fatal-flaw comments. They did not indicate whether that would be to a very limited audience or to the public, such as by posting on the FASB Web site."