CORRECTION TO TEXT: MOODY'S ABCP RATING ACTIONS FOR THE THIRTEEN DAY PERIOD ENDED JULY 11, 2002
MOODY'S, ISSUING NEW RATING METHODOLOGY REPORT, SAYS TRADE RECEIVABLES-BACKED TRANSACTIONS CONTINUE TO GROW IN EUROPE AND UNITED STATES
Moody's London office reports that trade receivables constitute a large and growing portion of securities debt, with the number of transactions backed by such assets expected to continue to grow in both the European and United States markets. Jean Dornhofer, Senior Vice President, has authored a rating methodology report entitled "Moody's Approach to Rating Trade Receivables-Backed Transactions."
The report notes that in light of the slower economic growth, the volume of trade receivables securitizations is expected to continue to increase, given the rising number of "fallen angels" -- recently downgraded corporations that may no longer have access to the traditional corporate commercial paper market or unsecured bank lending.
In addition, Moody's has identified a growing interest in financing accounts receivable transactions with term debt. From the perspective of the ABS investor, term debt securities backed by trade receivables offer an opportunity for diversification from consumer-driven assets and exposure to transactions with shorter weighted average lives. Term deals are also becoming more advantageous economically as an alternative form of execution, as the availability and cost of liquidity facilities for ABCP becomes scarcer and more expensive. The report contrasts the advantages of term versus ABCP financing for this asset class.
For further details, please see Moody's press release dated July 9, 2002.
U.S. MONEY FUNDS SEEK SAFE SAFE HAVEN IN ABCP; INVESTMENT CLIMBS TO 25% OF MONEY FUND ASSETS
Looking for a safe haven from corporate "fallen angels," U.S. money funds continue to purchase enormous amounts of asset-backed commercial paper (ABCP), according to a special report issued by Moody's Investors Service this week. Nearly a quarter of all money fund assets are now invested in ABCP conduits. This continues last year's trend, when investment was at 24%. Moody's has just published a special report, "U.S. Money Market Funds Carry a Big 'Buy-Side' Stick with ABCP." The report is now available on Moody's website, www.moodys.com.
As of May 31, U.S. money market funds held more than $343 billion of ABCP, or over 48% of all outstanding ABCP. Most ABCP conduits are rated Prime-1, and credit losses among these Prime-1-rated programs have been almost nonexistent. Outstanding ABCP in the US is now at $717 billion, representing 52% of all outstanding commercial paper, up from 37%, or $551 billion three years ago. Over the past year, ABCP outstanding has grown at a rate of over $4.7 billion per month.
"ABCP's competitive yields, strong credit profile, and ample supply make these products attractive to money market funds in the current market," says Moody's analyst Doug Rivkin, author of the report. Demand for ABCP is also tied to the diminishing supply of high quality unsecured commercial paper (CP). A changing perception of ABCP in the marketplace has also narrowed the spread between CP and ABCP, making ABCP more attractive to buyers.
THE RATINGS OF THE FOLLOWING ABCP PROGRAMS WERE CONFIRMED BY MOODY'S DURING THE PERIOD JUNE 28, 2002 THROUGH JULY 11, 2002:
HVB'S ARABELLA FUNDING ADDS A NEW GBP 465 MILLION NOTE BACKED BY UK REAL ESTATE LOANS AND A GBP 211 MILLION COMMERCIAL REAL ESTATE TRANSACTION
Arabella Funding LTD, the Prime-1 rated, partially supported, multiseller Euro ABCP conduit administered by Bayerische Hypo-und Vereinsbank AG (Aa3/Prime-1/B), has funded the purchase of a GBP 465 million note backed by United Kingdom real estate loans.
Arabella Funding fully supported the transaction with an increase to its program-level credit enhancement sized at 100% of the GBP 65 million transaction. Program-level credit enhancement thus assumes all foreign exchange, liquidity and credit risk associated with the deal.
Arabella also added a GBP 211 million United Kingdom commercial real estate transaction. The underlying property portfolio currently consists of two large regional shopping centers located in England. This is the third UK real estate portfolio added to Arabella. In contrast to a traditional CMBS transaction, ABCP holders are not exposed to risk arising from default of the borrowers under the underlying real estate loans, because liquidity funding is linked only to the latest available property valuation by a nationally recognized third-party appraiser. As part of its analysis, Moody's considered the historic yield volatility associated with the asset class securing the loan, and concluded that the risk of meaningful value erosion is minimal during any relevant ABCP exposure period. Liquidity is provided by Prime-1 rated HVB in the amount of GBP 215.22 million (102% of the facility amount), with syndication available.
Pool-specific credit enhancement is provided through approximately 11% overcollateralization. Program-wide credit enhancement is provided through a letter of credit from HVB amounting to 10% of this facility, which will be fully allocated to this transaction.
This partially supported transaction benefits from a loan-to-value (LTV) trigger set at 90%, which is calculated quarterly by an HVB subsidiary. Breach of the trigger will result in a new valuation of the properties by a nationally recognized third-party appraiser. If this valuation leads to a breach of an LTV covenant under the underlying real estate loan which is not remedied within the applicable grace period, no further ABCP may be issued against this pool. Maximum ABCP tenor is 270 days, which limits the period ABCP holders are exposed to any further deterioration in property value.
With these additions, Arabella is now authorized to issue ABCP of up to approximately Euro 4.2 billion. Also, monthly monitoring information about Arabella can be found at Moodys.com.
CREDIT LYONNAIS' ATLANTIC ADDS $100 MILLION MORTGAGE LOAN TRANSACTION
Atlantic Asset Securitization Corp., a partially supported multiseller conduit sponsored by Credit Lyonnais (A1/Prime-1/B-), added a $100 million transaction backed by conforming and non-conforming residential mortgage loans. The non-conforming loans are subject to certain maximum concentration levels. The facility provides interim financing to the mortgage seller during the period of time in which mortgage loans are transmitted to government-sponsored enterprises (such as Freddie Mac) or identified to be included in an MBS transaction. The mortgage seller is owned by a major regional single-family home construction company rated Ba1 by Moody's.
ABCP investors are protected by certain structural features of the transaction. 30-day delinquent loans are excluded from eligible collateral, and liquidity banks must advance against loans until they are 60 days delinquent. Also, no further ABCP may be issued if the 30-day delinquency rate exceeds 1%. Pool-specific credit enhancement is in the form of overcollateralization (the amount required varies according to the various types of mortgage loans) and a 0.50% fully funded reserve account. In addition, a program-wide letter of credit will be increased by 10% of the amount of this transaction. With this purchase, Atlantic is now authorized to issue up to $3.6 billion of ABCP.
WEST LB'S COMPASS PURCHASES $75 MILLION NOTE BACKED BY Aaa-RATED SURETY BOND POLICY
Compass Securitization LLC, through Compass US Acquisition LLC, the partially supported, multiseller conduit sponsored by Westdeutsche Landesbank Girozentrale (Aa1/Prime-1/C-), purchased a $75 million Aaa-rated asset-backed security backed by overseas remittances. Liquidity will advance to cover the timely payment of ABCP as long as the surety bond provider is not insolvent and rated below Caa.
Compass US currently has a purchase limit of $7.42 billion, with approximately $6.03 billion of commercial paper outstanding and $425 million of program-wide credit enhancement.
BAYERISCHE LANDESBANK'S GIRO BALANCED FUNDING CORP. PURCHASES A $97.56 MILLION SENIOR INTEREST IN AN AIRCRAFT LOAN
Bayerische Landesbank's (Aaa/Prime-1/C) (BLB) Giro Balanced Funding Corp. purchased a $97.56 million senior interest in an aircraft loan from an unrated airline. The loan is to finance the purchase of seven 50-seater aircraft. This is the first airline financing deal for the conduit. With BLB providing unconditional liquidity support, GBFC's program-level credit enhancement was not increased. To date, Giro Balanced Funding's total commitment is $4.0 billion, with outstanding ABCP at $3.6 billion, and program wide credit enhancement at $496.8 million.
CREDIT LYONNAIS' LAFAYETTE ADDS $50 MILLION Aaa-RATED ABS NOTE WRAPPED BY AMBAC, AND $125 MILLION TRADE RECEIVABLES FACILITY FROM ITS SISTER CONDUIT, ATLANTIC
La Fayette Asset Securitization LLC., a partially supported, multiseller conduit sponsored by Credit Lyonnais (A1/Prime-1/B-), assumed an assignment from its sister conduit, Atlantic Asset Securitization Corp., of a $45 million trade receivables transaction, the commitment for which increases to $125 million in the months of March through August of each year. The receivables are from an unrated manufacturer of cooking equipment. The receivables, subject to a high degree of seasonality, are from a small group of obligors. Transaction-specific credit enhancement is in the form of overcollateralization with a 5% floor. Investors' risk is limited by a put to liquidity when the deal is "out of formula" for more than 5 business days. La Fayette's program-level credit enhancement was increased by 10%.
La Fayette Asset Securitization LLC, Credit Lyonnais' partially supported multiseller conduit, added a $50 million Aaa-rated note issued out of a master trust structure established by a B1-rated banking institution located in Latin America. The note is fully supported by an insurance policy provided by Aaa-rated Ambac Assurance Corp. The receivables backing the notes are existing and future U.S.-dollar denominated electronic remittance payments that are paid to beneficiaries located outside of the United States.
This transaction is fully supported by liquidity provided by Prime-1-rated Credit Lyonnais, New York Branch. Program-level credit enhancement in the form of a letter of credit provided by Credit Lyonnais was increased by $1 million for this transaction. Giving effect to these purchases, La Fayette is currently authorized to issue up to $734.7 million of ABCP.
CREDIT LYONNAIS' LMA ADDS EURO 75 MILLION TRADE RECEIVABLES DEAL AND EURO 150 MILLION CLO
In Paris, Moody's confirmed the Prime-1 rating assigned to LMA SA, the multiseller, fully supported ABCP program sponsored by Credit Lyonnais (A1/Prime-1/B-). This rating action follows two recent pool additions to the program for a maximum amount of Euro 225 million. The two are a French trade receivable transaction in an amount of Euro 75 million and a collateralized loan obligation with a Euro 150 million purchase commitment.
Full liquidity and credit support is provided through asset purchase commitments that assure that LMA will have sufficient funds to pay maturing French ABCP at any time. Currently, the support providers of the LMA program are BayerischeHypo-Und Vereinsbank (Aa3/ Prime-1/B - on review for downgrade), CDC Ixis (Aa1/ Prime-1/C+), Commerzbank (A1/ Prime-1/B-), Credit Commercial de France (Aa3/ Prime-1/B), Credit Industriel et Commercial (A2/Prime-1/C+), Credit Lyonnais (A1/ Prime-1/B-), KBC Bank N.V. (Aa3/ Prime-1/B), Natexis Banques Populaires (Aa3/ Prime-1/B-) and Rabobank (Aaa/Prime-1/A). The current authorized issuance amount is Euro 2.05 billion plus $235 million.
JPMORGAN CHASE'S PARCO ADDS TWO NOTES TOTALING $570 MILLION FROM NEWLY ISSUED SERIES OF CREDIT CARD MASTER TRUST
JPMorgan Chase Bank's (Aa2/Prime-1/B+) Park Avenue Receivables Corp. (PARCO) added a total of $570 million in floating rate notes from a new series issued out of a credit card master trust. The underlying assets are Visa and MasterCard credit card receivables. PARCO purchased a $500 million unrated senior note that is supported by an 8.75% subordinated note and is partially supported by liquidity. The other note purchased by PARCO was a $70 million Collateral Interest Amount (CIA) note that is fully supported by liquidity. JPMorganChase has increased PARCO's program-wide credit enhancement by 10% of the amount of the senior notes. As of June 28, 2002, PARCO's total commitments amounted to $11.9 billion, total outstanding ABCP was $6.8 billion and program credit enhancement was $1.6 billion.
CIBC'S SPARC ADDS $60 MILLION OF RATED CDO NOTES
Special Purpose Accounts Receivable Corp. (SPARC), a partially supported, multiseller conduit sponsored by Canadian Imperial Bank of Commerce (CIBC)(Aa3/Prime-1/B), has added $13.5 million in Class A (rated Aa1) notes and $46.5 million in Class B notes (rated Aa2) in a CDO. Liquidity provided by Prime-1-rated CIBC will partially support the transaction. Since the assets are highly rated, no incremental program credit enhancement was added. SPARC is now authorized to issue approximately $4.36 billion of ABCP.
ROYAL BANK OF CANADA'S THUNDER BAY FUNDING INC. UNWRAPS $400 MILLION INTEREST IN CLUB REVOLVING $1 BILLION VARIABLE FUNDING CERTIFICATE
Thunder Bay Funding Inc. (Thunder Bay), a partially supported, multiseller ABCP program, sponsored by Royal Bank of Canada (Aa2/Prime-1/B+), removed full liquidity support from its $400 million interest in a revolving senior floating rate variable certificate backed by consumer loan receivables. Now the deal is partially supported by deal-specific credit enhancement comprised of 10% overcollateralization and a cash reserve account funded by excess spread that can build up to 12% of the outstanding amount of the certificate. Also, incremental program-level credit enhancement of 10% of the amount of purchased receivables is provided. ABN AMRO Bank's (Aa2/Prime-1/B+, senior unsecured and bank financial strength ratings on review for possible downgrade), Windmill Funding and Credit Suisse First Boston's (Aa3/Prime-1/C) Alpine Securitization Corp. and Greenwich Funding Corp. are co-purchasers in this club deal. Thunder Bay is authorized to issue up to $3.44 billion of ABCP. Currently, Thunder Bay has about $3.04 billion in outstanding ABCP, with $1.28 billion in program-level credit enhancement.
For a more detailed description of these ABCP programs, see Moody's GLOBAL ASSET-BACKED COMMERCIAL PAPER MARKET REVIEW, which is published quarterly.
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