With the deadline for compliance with the Securities & Exchange Commission's Regulation AB now less than four months away, speakers at IMN's recent ABS East conference voiced varied concerns about whether most issuers will be ready to comply by that time. One speaker even predicted the regulation's Jan. 1, 2006 deadline will cause an issuance rush in the fourth quarter of this year and a relative drought in the first quarter of next year.
"Reg AB may be the silent scud missile of this marketplace right now," said Daniel Clarke, managing director with JPMorgan Securities. Clarke said that if larger issuers find themselves unprepared to comply with the regulation going into the last month of the year, they may simply rush to get large volume deals done before year end, so they can afford to hold back on issuance at the beginning of the year, when Reg AB is in effect, until their legal teams can get comfortable with the rule.
Mid-to-smaller issuers, however, may not have the option of rushing to get deals done, and may simply have to turn to other funding methods, such as conduits, said Clarke. Both phenomena would sap volume from the market at the start of 2006.
Whether or not most issuers are ready for Reg AB is largely dependant on whether the SEC completes its pilot programs with certain issuers and provides the industry with adequate feedback on what it is expecting. "The SEC might give good examples and this might be a non-issue," said Clarke.
As part of a separate panel discussion KeyBanc Capital Markets Senior Vice President Craig Platt predicted that there would be a "mad scramble at the twelfth hour" for most issuers to become Reg AB compliant, and he hoped the SEC would be forgiving of smaller issuers. "You just hope they are mindful for people who can't get it together," he said.
McKee Nelson Partner John Arnholtz was less than impressed with the general state of Reg AB preparedness throughout the industry. Arnholtz said the biggest problem most issuers are having was how to post static pool data, but that most issuers were going to be posting that information on Web sites.
Arnholtz advised the best strategy for issuers and legal counsel is to go through and update systems a little bit at a time, rather than all at once. "On a piece by piece basis we've been adding a little more AB compliance at a time," he added.
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