The Federal Deposit Insurance Corp. (FDIC) has issued a final ruling meant to clarify the Orderly Liquidation Authority (OLA) receivership under the Dodd-Frank Act. Moody’s Investor Service considers this ruling to be credit positive for non-bank sponsored ABS, particularly auto loan ABS and equipment leases or instruments.
A report released by the rating firm today stated that the FDIC’s clarification confirmed Moody's earlier belief that the government agency “would tie its preferential claw-back powers under OLA to hurdles set by the Bankruptcy Code.”
As a result, Moody’s analysts believe that the claw-back risk facing investors will remain the same regardless of whether the securitization sponsor falls under the jurisdiction of OLA or the Bankruptcy code.
The final rule also limits the FDIC’s discretion, according to Moody's, as receiver of an ABS sponsor under OLA to claw-back assets from these ABS and treat buyers as unsecured creditors.
OLA allows the FDIC to serve as a receiver for non-bank financial companies deemed necessary to U.S. financial stability by federal regulators. It will affect ABS transactions that were previously immune from FDIC receivership because it expands the agency’s powers to include within its jurisdiction all companies otherwise subject to other insolvency law, according to the report by the rating firm.
Specifically, Moody's said that the final rule is credit positive for non-bank-sponsored ABS that use the market-standard method for perfecting a security interest in chattel paper such as auto loans and equipment leases or instruments. Without this rule, as mentioned above, these assets can be clawed back under OLA but not under the Bankruptcy Code, the rating agency stated.