ABA Receives SEC Preclearance on MSLP Accounting

The Securities and Exchange Commission today informed the American Bankers Association that it does not object to the association’s conclusion that Main Street Lending Program transactions meet the legal isolation criteria necessary for sale accounting treatment under U.S. generally accepted accounting principles. This action ensures that evidencing legal isolation will not be an impediment in the sale accounting analysis for MSLP transactions—such transactions may meet the legal isolation criteria without banks needing to obtain a true sales opinion from outside counsel.

In an unprecedented effort by a trade group, ABA sought this preclearance from the SEC in a letter last month. Absent the proper accounting treatment, banks would need to reflect the entire MSLP loan on their balance sheet, despite MSLP’s structure as a participation where banks sell a 95% interest in their MSLP loans to the Federal Reserve.

ABA raised the issue after learning that some auditors, mindful of MSLP’s novel structure, were seeking documented assurance to determine that MSLP transactions achieve legal isolation and would qualify for sale accounting. The letter contained specific caveats limiting the conclusion to the assessment of legal isolation for qualified and approved MSLP transactions and SEC reiterated that their conclusion is limited to the facts and circumstances outlined in the letter.