Michael D. Rumball
Since the Securities and Exchange Commission issued a request for comments on its proposed rules on asset backed securities on April 7, market participants have weighed in with their comments. Here are some of the things that ABS market dealers, investors, lawyers, accountants and originators have been saying (paraphrased of course).
1. The proposed asset-level disclosure requirements are inappropriate for many asset classes, such as auto loans and leases, and may deter securitizations and eliminate market access for some issuers.
2. The waterfall computer requirement takes two distinct aspects of securitization – monthly distribution reports and ABS modeling – and requires issuers to provide a single program that can do both. Programs do not exist that would meet the proposal’s specifications and developing that sort of model would add a substantial burden to issuers.
3. The “one size fits all” risk retention proposal, which would require a 5% “vertical slice” of all issued securities to be retained, is not appropriate for many asset classes, such as auto loans and leases.
4. The proposal to require an issuer relying on one of the safe harbours for private placements to provide, upon request from an investor, the same information that would be required as if the products were issued in a registered transaction would significantly adversely affect this market.
In future postings we will return to a more detailed look at each of these issues and various other aspects of the SEC release and the elicited comments.