In July, the Federal Deposit Insurance Corporation (the “FDIC”) proposed a change (discussed here) to certain provisions of its securitization safe harbor rule (the “Rule”), which relates to the treatment of financial assets transferred in connection with a securitization or participation transaction. The proposed change would eliminate the requirement under the Rule that disclosure documents for bank-sponsored securitizations not otherwise subject to Regulation AB’s disclosure requirements (i.e. non-public transactions) comply with Regulation AB. This could significantly ease the compliance burden associated with non-public bank-sponsored ABS issuances, potentially resulting in a greater volume of such transactions.
More recently, the possibility of other changes with respect to the Rule has been the subject of new disclosure for certain credit card securitization transactions.
Several programmatic credit card securitization platforms rely on the safe harbor provided for by the Rule that applies to obligations of revolving trusts or master trusts that issued one or more obligations prior to September 27, 2010, and for which the transfers of securitized receivables meet the conditions for sale accounting treatment under generally accepted accounting principles (“GAAP”) in effect for reporting periods prior to November 15, 2009 (the “Grandfathered Safe Harbor”). The Grandfathered Safe Harbor provides that, if the conditions for such safe harbor are satisfied, the FDIC will not use its repudiation power to reclaim, recover or recharacterize as property of an FDIC-insured depository institution any financial assets transferred by the depository institution in connection with a securitization transaction, notwithstanding that the transfer of such financial assets does not satisfy all conditions for sale accounting treatment under current GAAP .
Over the past few weeks, sponsors of a few credit card securitization programs have highlighted the possibility of a future transition away from reliance on the Grandfathered Safe Harbor, and towards reliance on one of the other safe harbors provided for by the Rule or future guidance to be provided by the FDIC (each, an “Other Safe Harbor”). Prospectus filings have included disclosure similar to the following:
“While the [sponsor’s] transfers of receivables are presently intended to meet all the conditions for grandfathered safe harbor status, future transfers of receivables may not meet one or all of those conditions and instead may occur in reliance on safe harbor regulations promulgated by the FDIC other than grandfathered safe harbor status, or in reliance on other guidance provided by the FDIC with respect to securitization transactions generally or the [sponsor’s] securitization transactions specifically.”
Sponsors may have an interest in a transition to an Other Safe Harbor due, in part, to the difficulty of assuring that transfers of securitized receivables meet the conditions for sale treatment under accounting standards that have not been applicable under GAAP for nearly a decade. It is likely that any transition from the Grandfathered Safe Harbor to an Other Safe Harbor would require further guidance or rulemaking from the FDIC, and the FDIC has not announced any proposed changes to address this aspect of the Rule at this time.