US securitization: Crippled by derivatives

Author: | Published: 1 Dec 2006

After almost a year under the Regulation AB disclosure regime, issuers of asset-backed securities (ABS) and other participants in the US ABS market continue to struggle with complex disclosure requirements, the most difficult of which is the requirement that ABS issuers supply financial information regarding derivative counterparties.

Many derivative providers, particularly those outside the US, cannot provide the required disclosure, either because they do not prepare their financial statements using US generally accepted accounting principles (Gaap) or because the corporate parent that consolidates the swap-writing subsidiary does not prepare complete separate financial statements for that subsidiary. As a result, only a limited number of derivative providers in the US can write currency swaps in public offerings. Some ABS offerings using currency swaps have been executed in the Rule 144A market rather than as public offerings to avoid the Regulation AB disclosure requirements. There is also a large and rapidly growing...