Orlando, Fla. - Regulation AB was obviously the talk of the town at the Information Management Network ABS East conference held here last week. Delegates were swarming to the sessions to catch up on the latest developments. To demonstrate demand, for the Sunday sessions alone, three panels were devoted exclusively to the subject matter.
On Monday's opening panel, Reg AB was one of the topics of discussion. Paul Colonna, senior vice president at GE Asset Management, said that even with the problems with standardization and the additional costs that the implementation of Reg AB entails, he likes it as an investor because it makes it easier to access information. In contrast, years ago, there was virtually no information about deals in the auto and credit card sectors, now it is much easier to get a hold of loan tapes.
However, MBIA Managing Director Paul Bernier said that it takes all of the mystery out of the credit and pricing of deals, thus making it harder for monolines to get a competitive edge.
At the panel held Sunday entitled Reg AB and the Investor' panelists were talking about how ABS market participants have reacted since Reg AB was implemented. Although the rule was meant to help increase information flow about securitization deals, some in the audience were questioning whether the new data being made available were at all useful.
"Yes, information is being disclosed; but do investors use it?" a member of the audience said.
Some delegates also brought up the issue of liability for the information provided on deals. This points to the adequacy of information provided at the point of sale, and whether deficiencies in the information provided at that point is cured by the data made available later through a deal's prospectus.
Ways of disclosure
Other participants were optimistic about how deal data is now being disseminated. Initially, issuers approached information disclosure differently and the deal details released varied across asset classes. But, as the year has progressed, things have improved to the point where there is now a "really good snapshot of consistency," said Pat Evans, vice president, Wilmington Trust Co.
However, panelists also noted that the level of data offered have differed depending on the nature of the asset class. For instance, data on mortgage deals, due to their inherent complexity, would be very detailed compared to auto securitizations.
A distinction, panelists said, should be made between what is being given out in terms of static pool information, which has a set regulatory purpose and provides a specific snapshot over time, as oppose to the data available on best practices Web sites. These Web sites, in contrast to static pool information, offer updated monthly data, provide interactive features as well as drill down data that users could slice and dice.
For static pool reporting, the problem arises when loan sellers do not have the loan performance information and issuers have to rely on third parties to provide the data. Panelists said that this is where the issue of having a central repository for information comes to play. Although aggregated loan performance information might be available on a majority of ABS and MBS deals, this is usually being offered on a subscription basis.
Reg AB education
More importantly, however, market participants are now actively educating one another about Reg AB and its impact on ABS transactions. For instance, John Arnholz and Edward Gainor from McKee Nelson LLP have come out with a newly revised supplement of Offerings of Asset-Backed Securities.' In this revised edition, Gainor and Arnholz provide an updated and expanded guidance about Reg AB disclosure requirements, an analysis of the Securities and Exchange Commission's telephone interpretations and other guidance on disclosure and reporting (ASR, 09/21/06), as well as offer a collection of information on developing ABS market practices under Reg AB and the securities offering reform rules.
This is to prepare issuers for the real test, which happens in March next year, when issuers would be required for the first time to file Reg AB compliant annual reports. Panelists at the session called Structured Finance Market Outlook: Views Across a Complex Landscape' said that there might be "dire consequences" for failure to file these reports on a timely basis, so they suggested that market participants familiarize themselves with the new rules because it's something that cannot "be taken lightly."
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