11/11/2011

Issuers Asked to Pay for Quality Label

The Association for Financial Markets in Europe and the European Financial Services Round Table are entering the final stages of an effort to develop a “quality label” for securitizations.

The latest phase of the project, set to begin in the coming weeks, entails polling issuers on their willingness to fund an operation that would grant the designation — a sort of stamp of approval verifying that deals meet minimum levels of transparency and basic health. The thought is that the feedback will serve as a key measure of support for the undertaking.

The initial sense is that there will be enough backing to move ahead. In fact, the Association for Financial Markets and European Financial Services Round Table could approve a measure to implement the labels this month — meaning they could appear on deals in early 2012.

The polling will be handled by leaders of a working group. It’s unclear how much money they’re asking issuers to kick in, but it would have to be enough to hire a “secretariat” and several staffers who would review deals. A new office also would be needed.

That said, there still are many details to be finalized. For example, issuers would have to offer more details about the loans backing their transactions. But it’s unclear how those disclosures would mesh with ones under development by government regulators.

For now, the two trade groups favor the term “prime collateralized securities” for deals that meet the quality standards. The groups and central-bank officials in Europe have been discussing the effort for about two years, in hopes that such a label would help woo back investors who fled the market during the downturn.

Issuers in Europe have retained 74% of their 2011 securitizations for use in repurchase facilities offered by the European Central Bank and Bank of England, according to Asset-Backed Alert’s ABS Database. Much of the rest has been sold to investors in the U.S.

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