Statement of Financial Accounting Standard (SFAS) 166 and SFAS 167 which relate to the reconsolidation of off-balance sheet securitizations are not expected to result in negative rating actions, according to Fitch Ratings.
This is because neither statement will change the economics of off-balance sheet transactions, according to Fitch Ratings.
However, challenges are expected for analysts and issuers as the transition to a new set of accounting standards is made.
Analysts will need to deal with changes in the financial statement content, which could hamper the evaluation of credit on a historical and relative basis. It could also become more difficult to identify unencumbered assets with more secured financing added to the balance sheet.
Additionally, the four measurement methods for re-consolidation, permitted by Financial Accounting Standards Board, could make going forward with peer comparisons more difficult.
Fitch Senior Director Meghan Crowe said that for issuers, the structuring of financial products could change as the qualified special purpose entity ceases to exist and the test for consolidation of variable interest entities switches to a qualitative focus from a quantitative one.
She added that eliminating the regulatory capital arbitrage for off-balance sheet accounting could yield lower ABS volumes. However, Fitch believes this market will remain a necessary component the funding profiles of many issuers.