As the June 30 deadline looms for full adoption of Financial Interpretation No. 46, there's been surprisingly little progress - at least visibly - made in conduit restructuring, largely tied to perceived ambiguity in the rules themselves, sources said.
"It's not like we're staying here all night looking at restructuring proposals," noted a ratings analyst. "Very little has been accomplished, other than discussions."
Last Thursday afternoon the Financial Accounting Standards Board posted its set of staff positions - six in all - to clarify some of the rules laid out in FIN 46, and address certain questions directly, such as, "How do fees paid by a variable interest entity to a decision maker or provider of a guarantee of substantially all of the entity's assets or liabilities affect the determination of the primary beneficiary of a variable interest entity?"
There is a rough one-month commentary period (comments due May 26).
Reportedly, market players have been hesitant to take any restructuring action before receiving, then reviewing the FASB staff positions, so that they can fortify their own understandings of the staff's intentions.
That said, the final hour is approaching fast, and, as anticipated by the rating agencies, there is likely to be a rush of restructuring proposals once the various decision makers are certain their strategies will pass muster.
Meanwhile, at last week's FASB meeting, the board decided not to eliminate FAS 140 QSPEs altogether, which had been a consideration as part of the project to clarify, amend and/or interpret FAS 140, according to Ernst & Young. In its Accounting Alert, the firm breaks down several of the tentative decisions related to the FASB's said project on the "permitted activities" of a QSPE.
New conduit nonetheless
Meanwhile, though volume in the asset-backed commercial paper market is still sputtering at the $700 billion mark, there's been some activity, including the launch of a new conduit for Countrywide Home Loans.
Moody's Investors Service stamped its P1' rating to about $10 billion (the current authorized amount) for the Park Granada conduit, an extendible note program. The maturity dates of the ABCP issued by Granada can be extended an extra 120 days, which helps the conduit achieve its credit status without traditional bank liquidity facilities. Countrywide will use Park Granada to fund mortgage originations. Lehman Brothers is the primary broker/dealer for the conduit.
Meanwhile, last week Fitch Ratings noted that several asset-backed commercial paper conduits have been amended to address new accounting rules.
In its April ABCP Paper Trail, the rating agency indicated that a large portion of the month's activity was related to conduit restructurings aimed to ensure QSPE status as the market heads towards FIN 46.
One of the most visible examples so far, two conduits sponsored by U.S. Bank - Stellar Funding Group and Galaxy Funding - amended their procedural documents in late March to limit perceived discretionary decision making. It should be noted that these conduits were originally launched as QSPEs, and these changes are really intended to tighten their adherence to the QSPE guidelines.
As both Moody's and Fitch noted following the restructuring, the securities-backed conduit Galaxy can no longer directly purchase assets directly, but will have them transferred in from U.S. Bank. Similarly, loans can no longer be directly originated by Stellar Funding Group, the loan-backed program, but will be originated by U.S. Bank and then transferred. Also, Galaxy has been amended such that it can only purchase assets through simultaneous funding in the market, as opposed to drawing on liquidity.
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