Australian securitizers are concerned that a new accounting rule could force many of them to take assets back on-balance sheet. The ruling Abstract 28: Consolidation Special Purpose Entities is an interpretation of AASB 1024 by the Urgent Issues Group of the Australian Accounting Standards Board.
The abstract is intended to clarify the circumstances under which a sponsor might be deemed to control a special purpose entity.
According to Stephen Gustafson, head of Deloitte Touche Tohmatsu's securitization services group in Sydney, the abstract "appears to go further than any previous accounting literature in this area, and has the potential to bring a number of securitization vehicles back on balance sheet."
Among the factors listed by the Urgent Issuers Group that might indicate that a sponsor controls an SPE:
* the SPE's activities are conducted according to the specific business needs of the sponsor;
* the SPE uses an "autopilot" mechanism;
* the majority of economic benefits are distributed to the sponsor in the form of future net cashflows or earnings;
* the sponsor has the rights to majority residual interest of the SPE;
* in substance, the capital providers receive consideration equivalent to a lender's return.
Said Gustafson: "Some of these factors will raise difficult questions for existing securitization structures. For example, some SPEs structured as trusts establish the sponsor of the SPE as the beneficiary. Earnings of the SPE are typically distributed to that beneficiary. Given the specifics of the abstract, this structure may lead to a question as to whether the SPE should be consolidated."
