FASB: Credit Suisse First Boston's conference call on the amendments to FAS 140 discussed the key challenges and issues that the market both term and ABCP will be commenting on and structuring towards once the rules are set in stone. The comment period ends July 31.
According to speakers, for public companies, adoption will take place in the quarter immediately following the final issuance of the standard, and during the first. Michael Hall of KPMG -- careful to distinquish his personal views from his firms -- believes the final amendments will be issued in the first quarter 2004 and adopted in the second quarter.
FASB’s proposed amendment has a few major components to it, as was discussed on the call. First, liquidity and credit enhancement are on the spot. No transferor can provide liquidity or credit enhancement, other than a subordinated interest, for the SPE to meet the Q criteria. If the SPE is able to “re-issue” beneficial interests, control of the transferor over the re-issuance of BIs becomes an issue, such as in single-seller ABCP conduits where the transferor is often the program administrator.
Also, if the SPE can re-issue, no one party can provide more than 50% of the liquidity support to an SPE for it to be a Q. If a party is able to control the re-issuance of BIs from an SPE, that party cannot also be providing any of the liquidity support or credit enhancements (i.e., administrators cannot provide liquidity support if the conduit aims to satisfy the Q criteria)
The call shifted to credit card structures, and whether or not additional series from a Master Trust constitutes “re-issuance” of beneficial interests. One speaker argued that if the existing notes are not paid down by the additional series but rather paid down by the structure’s cashflows then this should not be considered re-issuing. That said, some MTs have a short term issuing component similar to an ABCP conduit, which repays by re-issuing, a condition more difficult to argue is isolated from previous issues. Further, it might be difficult to argue to that MTs with the ability to re-allocate excess interest across series are not re-issuances, versus series that are isolated from one another. The ability to decide how to re-distribute excess spread also brings about control issues.
The credit card discussion briefly covered the notion that clean-up calls, a feature found in most ABS and MBS structures that allows the transferor to re-purchase the receivables once they consist of less than a certain threshold (typically 5% to 10%) may violate the “no put option” criteria. Included in the proposal are any arrangements where a transferor is contractually obligated to deliver additional cash to the trust.
Hall does not believe it was the FASB’s intention to include clean-up calls in the scope of its rules.