The results of the inaugural SF Market Opinion survey conducted by Standard & Poor's were released last week. Not surprisingly, SPE consolidation is not the route of choice for any of the parties seeking the increased disclosure demanded by today's scandal-plagued markets. (see ASF comment p. 5)

The effect of SPE consolidation would likely be a stunting of growth in securitization markets - as it would impact the economics of certain securitizations - potentially passing on increased costs to consumers.

"While structured finance players made it clear that they are in favor of increased disclosure, transparency and a greater focus on corporate integrity, the results of the survey show that most of them feel that the consolidation of SPEs is the wrong method to reach that goal," said S&P spokesman Adam Tempkin. Citing the survey results, S&P claims that market participants feel the seemingly singular emphasis on SPE consolidation as the main solution is inappropriate.

"There were many other solutions suggested as a more efficient means of preventing abuses," Tempkin said, "including more detailed risk/return estimates, the appointment of an outside auditor that reports to the SEC or better disclosure of guarantees and related party transactions."

An overwhelming 247 of the 305 respondents said that the method by which the Financial Accounting Standards Board hopes to achieve its goal - the 10% equity ownership proposal for SPEs - is not the best way to maintain the integrity of financial statements. Showing the market's cynicism, less than one-fifth of respondents, just 18%, said they thought the eventual outcome would be fair to all parties.

"The future treatment of ABS in financial statements will lead to risk sharing and an increase of transaction costs in ABS structures," one respondent noted. "Arbitrage deals will decrease and economic risk reduction-driven deals will continue."

Some leaned to the contrary, however, with a small number of participants indicating the 10% equity stake in SPEs may actually be inadequate. "I think we should require vehicles to hold more than 10% equity," one respondent wrote. "Heck, you have to put 20% down on a house, so why not give businesses the same rules that the average consumer has to put up with?"

Areas within the securitization world that face the most risk are the ABCP and CDO markets, S&P said, should these sectors not achieve exemption from reforms. Twenty-one percent of those surveyed felt that the ABCP market is in the most danger, while 25% believe that CDOs face the most risk. The most likely result of any changes in accounting rules, S&P added, is a decline in issuance volume for these sectors. On the positive side, 39% of participants do expect the ABCP and CDO markets to be exempted from consolidation.

A high percentage of respondents felt that regulators should focus more on corporate governance and less on the fundamentals behind securitization; 46% said the consolidation of SPE issuers would not lead to better risk evaluation of the parent.

This was the inaugural edition of the SF Market Opinion Survey a quarterly project for S&P aimed at encouraging discourse within the market on the topic du jour.

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