Banks and other issuers of credit card asset-backed securities were up in arms Tuesday when they learned that a new regulatory policy could delay the issuance of fresh securities.
The Securities and Exchange Commission is requiring banks and credit card specialists whose securities' chargeoff rates exceed prescribed levels to file new registration statements every time they want to sell new paper.
"We've been expressing this view for a long time," said Meredith Cross, deputy director of the corporate finance division at the SEC, adding that the policy merely amounts to a stricter interpretation of an existing rule.
Nevertheless, a one-page report by Deutsche Morgan Grenfell analyst Lisa Anderson discussing the SEC rule caused considerable consternation among issuers, who are already extremely sensitive to any seeming government reaction to the rising chargeoffs that have afflicted credit card securities for months.
Ms. Anderson said she wrote the report after learning that a bank had problems getting a securitization approved by the SEC.
The Public Securities Association, a trade group representing asset- backed underwriters and brokers, held a rare conference call Tuesday to discuss what it regards as the SEC's new approach.
At issue is the speed with which banks and credit card companies can bring new credit card securities to market.
Since the SEC granted "shelf registration" status to asset-backed securities in 1992, issuance of credit card-related securities has more than tripled.
A big reason for the growth is that shelf registration gives issuers, for example Chase Manhattan Corp. or Citicorp, wide flexibility. In effect, they have the ability to sell securities whenever they deem market conditions favorable. As one analyst put it, the securities have "stealth value."
Investors in asset-backed securities gripe that under this system they have no idea who is bringing securities to market or when. That makes it difficult to study the credit quality of the securities and determine whose are worth buying.
"The way it stands now, it's a slam-bang system," said one lawyer who works on many asset-backed deals. "Issuers can come to market any time and say 'Buy my securities or someone else will."'
It was this edgy environment that caused news of the SEC's position- which commission officials insist has been in effect for a year-to cause such a splash.
The SEC's interpretation would delay issuance by requiring banks and other issuers to file new registration statements every time they want to securitize pools of credit card receivables with loans more than 60 days overdue, or with 5% of the loans 30 to 60 days overdue.
SEC officials say their reasoning is that shelf registration status is only for assets that can be converted into cash. But as chargeoffs and delinquencies grow in most every portfolio, the amount of assets the SEC does not consider convertible to cash is increasing.
The SEC said the rule is in effect for all new registrations. Banks with existing shelf registrations may continue to issue securities as before.
Still, with chargeoffs and delinquencies generally up, nearly everyone will be affected by the SEC's new take on the rule. "It takes care of everyone I know," said Karen Wagner, head of asset-backed securities research at Credit Suisse First Boston.
Issuers said the new interpretation wouldn't eliminate their access to the market, but would make it more time-consuming and costly.
Caroline Benn, spokesman for the PSA, said during the group's conference members wanted to know when and how the SEC's policy would be implemented.
"It's a matter of some concern to us and we plan to speak to the SEC," she said. "We want the commission to clarify its position, let us know exactly what they have in mind here."
But according to the SEC, there is nothing to talk about.
"This rule has been posted on the World Wide Web for a year," said Ms. Cross. "Really, there is nothing new."
