The SEC has proposed new regulation which creates a "principles-based" set of disclosure items for "asset-backed securities." These disclosure requirements are concerned with background, experience, performance of parties, historical performance data in relation to portfolio and individual pools, and the assets produced for securitization.
The SEC is proposing required disclosure to any sponsors of "asset-backed securities," and additional information must be given about a sponsor's securitization platform, including: size, composition and growth of portfolio, and any information must be disclosed which is deemed relevant to the original asset pool. The disclosed information could include events which trigger performance, or facts about previous securitizations. The SEC seeks to require historical performance data as well; insofar it pertains directly to transactions. These proposed rules would require three years of delinquency and loss information for the sponsor's overall portfolio, for that asset type involved, presented in time increments (i.e. monthly, quarterly) relevant to the asset type. Further, static pool data is required on a level basis with respect to the sponsor's previous securitized pools of the exact same asset type established during the period. The information should be delivered according to specific factors, such as asset term, asset type, yield, geography or credit score range.
In the even the depositor and sponsor are separate entities, identifying information about the depositor is required, including proof of the ownership structure of the depositor, and the characteristics of activities other than securitizing assets. Additionally, if there is a difference materially between the two, as in a "rent-a-shelf" situation, the same information described for the sponsors above regarding a previous securitization program is needed.
Servicers and Originators
These disclosure requirements also require information for all servicers (any person responsible for the management or collection of pooled assets or making allocations and distributions to holders of the ABS). This also includes primary servicers who handle 10% or more of the pool assets. Servicers must submit a discussion of their services concerning assets of any type, a detailed description of their experience in handling assets that are the same type as those in the current transaction.
The new rules propose that originators, who originate more than 10% of the pool assets, must provide information concerning the originator, and a description of the program and experience.
Pool assets and sources of pool cash flow
The new rules require a description of the solicitation, credit granting or underwriting criteria. The selection criteria for the asset pool must be described, as well. Static pool data is only necessary if the pool is a seasoned pool during the current transaction.
The new rules propose that additional disclosure is triggered by a significant obligor, which is defined as:
An obligor or group of affiliated obligors on any pool asset or group of pool assets which represent more than 10% of the asset pool; or
A single property or group of properties which secure an asset pool or group asset pool; or
A lessee or group of lessees who represent more than 10% of the asset pool.
The descriptive information from obligors required under the new rules include identity, details of the organization, characteristics of the business, nature of concentration that makes it an obligor, and material terms of the pool assets with the significant obligor. Financial data is only requested in the event that pool assets related to an obligor is more than 10%, but less than 20%, of the overall asset pool. If the pool asset is greater than 20%, the obligor must provide audited financial statements outlined by Regulation S-X.
The information required of a credit or liquidity enhancement provider, under the proposed rules, is the same as that required of a significant obligor. Disclosure is required in the event a swap is out of the money and no payments are needed, but the swap provider is contingently liable for more than 10% or 20% of the cash flow supporting a class.
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