One CDO analyst familiar with the exposure draft, speaking on condition of anonymity, was upbeat about the new document. When the consolidation issue was first being aired by the FASB in March, officials in the CDO business were concerned that stringent regulations would cut CDO volume by requiring consolidation of the structures on the balance sheets of publicly owned investors. The fear was that investors in these companies would penalise the companies for having their CDO investments on-balance sheet.
According to the CDO analyst, on a preliminary reading, the interpretation in the new exposure draft seems to allow managed CDOs to remain exempt from consolidation, regardless of the equity class comprising their capital structure. The analyst said it was unclear how the interpretation applied to synthetic CDOs, as there was no explicit reference in the exposure draft to derivatives.
The comment period for the new exposure draft concludes on August 30, 2002.