Transparency to Spook Investors From ABS Sandbox?
From Dodd-Frank to other federal and state regulatory and enforcement actions, issuers of asset-backed securities in the auto space are in the midst of a head-spinning slew of regulatory changes.
All issuers of asset-backed securities will soon be required to include a truckload of new data points in SEC filings when they take a pool of loans to market. And that could impact the mood and behavior of investors as well as the lenders themselves who play together in the ABS sandbox.
That was the message on day at the 20th Annual ABS East Conference, which kicked off on a hot and sticky Sunday morning this week in Miami Beach.
The additional layer of transparency, in part a result of regulation AB, and what that layer might mean for the overall ABS market, was a topic of conversation overheard around the conference (as well as in an official panel discussion) as 3,000-plus attendees arrived and settled in for two days of sessions.
One early Sunday panel discussion centered on key accounting and tax developments and how they will impact the ABS market. Alan Kusksa, director at KPMG, and Sherif Sakr, partner at Deloitte & Touche LLP, pointed out that investors will soon be able to measure the credit scores and other information about borrowers in any given loan pool that’s heading to the ABS market.
But the panelists, as well as several audience members agreed that it should all prove “interesting” to see exactly how that information actually impacts the real world markets themselves. How will investors use the newly disclosed, granular data on pool performance to make investment decisions?
Experts say auto ABS won’t be any more impacted by all the new regulation than any other ABS classes. It’s the same across the board. The future is simply more transparent.
“Yes, there is a significant focus on auto assets, especially subprime type loans and that asset class. The new regulations will require more and more disclosures of the quality underlying those portfolios, such as the credit ratings and the scores of the borrowers themselves,“ Sherif Sakr, Partner Deloitte & Touche told Auto Finance News.
He said issuers, underwriters, ratings agencies even service providers will all be accessing the impact of the new regulations in the coming months. And, regardless of what they think, they’ll all most likely have to comply with additional disclosure requirements, such as the due diligence they each perform on a pool of assets before it gets to market.
“For loans, there’s 60 data fields, and for leases there’s 72,” John Pennington, director of global transaction services at Citibank, told Auto Finance News. He said the issuers in a public deal will be required to post that information to the SEC website as an appendix.
