Improving Issuer–Investor Communication in U.S. Securitization Transactions

Abstract

The U.S. securitization market has been addressing many of the lessons learned from the financial crisis in an effort to rebuild the market in a more sustainable and sound fashion. One theme recognized by an increasing number of market participants concerns improving the communication process between issuers and investors in structured finance transactions. As the private ABS market emerged in the mid-1980s and shifted the source of much of consumer finance from banks, as lenders, to capital markets investors, the fundamental relationship between lender and borrower changed, as the authority of the lenders was distributed across multiple investors. Under this model, efficient communication between issuers (i.e., lenders) and investors is important, especially in the context of amendments, waivers, and consents (AWCs). Moreover, the way in which issuers communicate with investors in the securitization market underwent a significant change with the adoption of Rule 144A, as private placement transactions took on many features of the public bond market, including the use of book-entry securities. Issuing securities in book-entry form creates a separation of legal and beneficial ownership of the underlying securities, which has visible implications for investor communication in the ABS market. This article looks at the way that issuers currently communicate with investors in the U.S. ABS market when looking to effectuate AWCs. It also examines some steps the market is taking to improve this process, including a solution that utilizes the distributive power of Bloomberg to deliver AWC notifications directly to end investors.