According to a report issued by Fitch IBCA, one of the major innovations set to hit the asset-backed commercial paper sector is the development of password-protected web sites created by administrators for their ABCP conduits.
The web sites will provide investors with more timely performance and portfolio data, including portfolio characteristics, counterparty rating updates, and compliance with relevant triggers, convenants, and stop-issuance event scenarios, as well as the Securities and Exchange Commission (SEC) Rule 2a7 compliance. This will allow administrators to make information about their ABCP conduits more readily available. While it will be an innovation in the ABCP sector, web sites such these have been in existence for quite some time in the commercial mortgage-backed arena.
"We've been speaking to a number of clients about their plans to set them up," said Debra Seife, an analyst at Fitch. "We've been in conversations with a number of participants in the asset-backed CP market who are interested in either linking to Fitchs' web site directly or linking to specific reports that might relate to their business. Some participants have been thinking about putting the prospectuses on and just making information more readily available to investors."
However, in a world virtually run by computers and filled with hackers, market participants have to wonder if making this information available via the Internet poses a threat.
"I imagine nothing would be put on until it would be reviewed by a firm's counsel and there probably would be certain disclaimers," Seife said.
Seife also added that the web site wouldn't cause any credit issues, but that it may cause favoritism in some instances.
"...Perhaps to an extent, a conduit creates a web site and makes information more available to them, investors may begin to have preferences for dealing with those programs," Seife explained. "Accessed information is always an issue for investors."
The introduction of these web sites may also raise some security issues as well, in terms of whether information posted on the site constitutes breach of disclosure.
"This is something that a number of our clients are focusing on at the present time," said Jim Croke, partner at Cadwadalar, Wickersham & Taft said. "Most asset-backed commercial paper programs provide for private placement of commercial paper and in order to have an effective private placement of securities, it's important to not publicly advertise or generally solicit people to purchase those securities."
Croke advises that if an issuer was interested in putting some type of notice on the Internet relating to a specific asset-backed commercial paper conduit, it would have to exercise extreme care in order to be sure that the SEC does not view the hosted information as constituting a general solicitation or advertisement.
If information were found to be a solicitation or advertisement, Croke explained, the issuer could essentially lose the benefit of the private placement exemption that the securities laws would otherwise provide. This could place them in the position of being an unregistered issuer of securities as well as being subject to laws and regulations that would have bad effects on the issuers' reputation.
"I think what people are trying to do in that regard is set up some format where people can gain access to web sites," Croke said. " The purpose of that is to try to have available on a kind of a real-time basis - copies of offering documents and servicing reports related to the asset-backed commercial paper program."
These things can be provided, Croke feels, as long as access to them is restricted by some sort of password-protection system that limits entry into a protected area to people who are qualified as being credited institutional investors or qualified borrowers under the securities laws.
Croke added that another factor issuers should be wary of is that even if a web site is password-protected, an invitation to submit information to qualify as a credited investor may still constitute a public solicitation if the invitation refers to a particular offer of securities.
"You have to be careful to ensure that what's drafted in the unsecured areas of the web site doesn't amount to an offer or general solicitation or general advertisement under the applicable Securities Act rules," he noted.
