Issuers of collateralized debt obligations welcomed recent amendments to an accounting rule that threatened the growth of the collateralized debt obligation sector by forcing one of the parties to consolidate the instrument on its balance sheet. Jean Fleischhacker, senior managing director at Bear Stearns, cut to the chase by declaring, "It is no longer a big issue."
The change to the rule, known as Financial Interpretation Number 46, should also mean that CDO managers do not have any excuse for not holding the equity risk, added Fleischhacker.
CDO managers and issuers have been concerned by the accounting standard that originally threatened that structures, if deemed to be variable interest entities, must be consolidated. The amended standard means only entities deemed to be the prime beneficiary of the deal need to consolidate.
