PHOENIX, Ariz. - Arizona proved much less a panacea for industry pundits at ABS West than in years past. Golf rounds were held amid flags flying at half-staff - portions of the Columbia space shuttle were located in nearby Flagstaff. And much like NASA officials, the focus of this year's conference appeared to be detailed damage assessment.
While on the surface that may be an all too familiar mantra, the role of the ABS investor, the need for bondholders to become proactive, and what, exactly, are trustees compensated fairly to do, proved to be the conference's hot topics. Of course nothing could quite drown out the concerns associated with new accounting guidelines from the Financial Accounting Standards Board.
And there was quite a crowd. Approximately 2,500 industry professionals were in attendance, making this the largest conference to date from Information Management Network, sources said.
Lively moderator Brian Clarkson of Moody's Investors Service made one point abundantly clear to attendees - the names may have changed over the years, but the stories are still the same. While he negated to coin a theme, Clarkson culled headlines and previous conference topics from as far back as 1995. Nearly all involved blow-ups and downgrades, early amortization triggers, and, a theme currently in the headlines, "where was the trustee?" Looking back on the recent history of the ABS market appeared to set the tone for the conference's opening address.
In short, panel participants agreed that the time has come to address these seemingly ever-present ABS issues that a market - which roared through the 90's - was able to push to the side. If not, the market runs the risk of having regulators do so for them, scaring investors away in the process and putting a choke-hold on the growth ABS has basked in for several years.
"It's a laundry list of issues...the whole market is under a lot of stress," said Robert Malin, of Salomon Smith Barney.
Fear in the desert
Is the asset-backed market being driven by fear or greed?
That was the question posed by Michele Russell-Dowe during the opening general opening session. Participants were relegated to the fact that the blowups and increased headline risk seen last year are here to stay and, instead of the usual finger-pointing seen at past conferences, the discussions were centered on how the ABS community can fix the problems.
Investors, issuers and underwriters all agreed that in order for the market to continue growing everyone has to confront the new risks facing the market and adjust and investor compensation accordingly. How these needs are addressed, however, varies depending upon who you ask.
While Moody's Clarkson noted supply has increased across all sectors of the market, and across the globe, headlines have been a constant since these gatherings began in the mid-1990s. In a rib aimed towards publications, including this one, Clarkson hinted that the media is at least partly responsible for the recent troubles at NCFE and NextCard Inc., but conceded that going forward, blowups will not disappear.
While issuers pleaded for increased transparency and investors pleaded for additional yield, underwriters said that the market has the potential to continue its growth as long as these difficulties are worked out. As noted by Salomon's Malin, if these problems can be solved, the ABS market "may surpass the corporate [debt] market in 2003."
But there is little question that the scapegoat this year is going to be the trustee community. Without any representation on the panel, the role of the trustee was jokingly compared by MBNA Bank America Chief Corporate Finance Officer Vernon Wright to that of a "trusty" - a prison inmate with favored status (see story p. 7).
Many on the panel agreed, noting that responsibilities of the trustee in a securitization, as well as the fees it collects, has to change in the future. No longer are trustes seen winning assignments strictly because of an affiliation with an issuer or an underwriter of a transaction. Trustees will be awarded deals based on the ability to quickly and efficiently handle difficulties that may arise.
Amid all of the challenges the market has proven its resiliency and is at the point where it continues its growth trends, "or becomes a specialty niche market," said John Cerra, portfolio manager at TIAA-CREF.
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