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Rating Action:

MOODY'S ABCP RATING ACTIONS FOR THE SEVEN DAY PERIOD ENDED JULY 18, 2002

23 Jul 2002

New York, July 23, 2002 -- ROYAL INDEMNITY POLICY DISPUTE HAS NO EFFECT ON ABCP CONDUIT MARKET

At this time, Moody's believes that ABCP investors have no exposure to the risk of nonpayment by Royal Indemnity under any credit enhancement or guaranty policies in ABCP transactions.

In a separate press release dated July 16, 2002, Moody's noted that MBIA Insurance Corporation (MBIA), a Aaa-rated financial guarantor, is potentially exposed to substantial credit losses if Royal Indemnity Company ("Royal Indemnity," A1 insurance financial strength) prevails in its ongoing attempt to rescind its insurance policies on loans in several of Student Finance Corp.'s (SFC) term securitizations wrapped by MBIA. Royal Indemnity is claiming that Student Finance Corp. and related parties acquired the insurance policies written by it, in part, through fraudulent inducement and takes the position that the policies should be rescinded.

In those term transactions, Royal Indemnity provides credit insurance policies that cover 100% of the principal and 90 days of interest on all defaulted student loans. The securitizations were also wrapped by MBIA. If granted, rescission of the Royal Indemnity policies would directly expose MBIA to the credit risks of the underlying loan portfolio and could translate into substantial credit losses for MBIA.

Moody's is aware of one transaction involving Royal Indemnity purchased by two conduits in the ABCP market. The transaction totaled $150 million and carried credit insurance from Royal Indemnity but did not have guarantees from MBIA. However, in each conduit the deals were fully supported by the liquidity banks, so that ABCP investors had no credit exposure to Royal Indemnity. The transaction was removed from both conduits prior to July by the conduits' respective liquidity support providers. There was no loss to investors and no draw on program credit enhancement.

In ABCP conduit transactions that are supported by multiline insurers such as Royal Indemnity, the liquidity facility typically advances against the obligation of the multiline insurer to provide funds under the policy. Thus, payment disputes under these policies generally do not affect the ABCP investor; instead, the matter is between the liquidity bank and the multiline insurer. The liquidity banks stand between ABCP investors and the multiline, much as MBIA is standing between investors and Royal Indemnity in the SFC term transactions. However, ABCP investors may take credit risk with respect to the insurer, in that insolvency of the insurer may be an out to liquidity funding.

In contrast, ABCP investors may take certain payment risks in addition to credit risk with respect to payment obligations of monoline bond insurers such as MBIA. The monoline companies have a different business model for payment under their policies, and an excellent track record with respect to willingness to pay. Moody's believes this risk is commensurate with the Prime-1 rating of ABCP programs.

Please see Moody's press release dated July 16, 2002 for more information on the MBIA/Royal Indemnity situation.

MOODY'S ASSIGNED A PRIME-1 RATING TO THE FOLLOWING ABCP PROGRAMS DURING THE SEVEN DAY PERIOD ENDED JULY 18, 2002:

MOODY'S RATES ABCP OF BLB'S GIRO LION FUNDING LIMITED PRIME-1

In London, Moody's assigned a rating of Prime-1 to the asset-backed commercial paper of Giro Lion Funding Limited ("Giro Lion"). Giro Lion is a newly established, partially supported ABCP program sponsored by Aaa/Prime-1/C rated Bayerische Landesbank, Girozentrale ("BLB"). Giro Lion's program size is $4 billion. Giro Lion will be BLB's second European ABCP conduit, after Indigo Funding Limited. BLB will serve as program administrator, program supervisor, referral agent and financial advisor.

Giro Lion will use the proceeds from the sales of its notes to advance funds to three different asset purchasing companies, which will use the proceeds to purchase or finance various types of assets. The assets can be broadly classified into three different categories:

1) Client term and trade receivables transactions originated and structured by BLB and purchased by Giro Lion Receivables Limited;

2) Highly rated securities (ABS, corporate and government bonds or loans, rated at least Aa3) purchased by Giro Lion Securities Limited pursuant to certain investment criteria; and

3) Highly rated securities financed by Giro Lion Loans Limited and linked to the performance of a reference portfolio of BLB loans/bonds (bank-balance sheet assets).

The Prime-1 rating of Giro Lion's ABCP is based on, among other factors: Moody's review of all assets prior to acquisition, except for highly rated securities purchased in accordance with agreed investment criteria; tight investment criteria, which limit assets eligible for purchase to assets rated Aa3 or above; the provision for a cease issuance of commercial paper should the conduit fail to maintain the necessary credit enhancement coupled with Giro Lion Securities' obligation to sell any assets downgraded below Aa3 within 30 days; liquidity support from Prime-1-rated institutions with a funding basis of non-defaulted assets plus senior costs and expenses; a letter of credit provided by BLB to Giro Lion Receivables and Giro Lion Securities, which is dynamically adjusted upon each seller addition; and the capabilities of BLB as program administrator, program supervisor and liquidity agent.

There are two forms of credit enhancement available to protect ABCP investors, seller-specific and program-wide. Seller-specific credit enhancement may be in the form of a cash fund, over-collateralization and/or a subordinated loan from the seller. It is expected that each seller will provide this credit enhancement so that it is in the first loss position.

BLB provides program-level credit support to Giro Lion Receivables and Giro Lion Securities in the form of an irrevocable letter of credit ("LOC"). This LOC has a target amount equal to 5% of the aggregate facility limits of pools purchased by Giro Lion Receivables. Giro Lion's liquidity is provided at the purchasing company level by Prime-1 rated institutions. The commitments will be sized at 100% of face ABCP plus 0.5% to cover senior expenses. In general, liquidity will fund for non-defaulted assets and senior expenses and will not be available if the respective borrower is bankrupt. BLB in Munich acts as liquidity agent under the liquidity facilities.

For further details, please see Moody's press release dated July 18, 2002.

MOODY'S RATES HBOS' GRAMPIAN FUNDING PRIME-1

Also in London, Moody's Investors Service has assigned a Prime-1 rating to the asset-backed commercial paper (ABCP) issued by Grampian Funding Limited under a newly established, partially supported, multiseller ABCP program sponsored by HBOS Treasury Services plc. Grampian will use the proceeds from the sale of ABCP to invest in a portfolio of highly-rated asset-backed securities subject to a set of predetermined investment guidelines which specify credit quality and concentration restrictions.. The conduit's investment advisor, HBOS Treasury Services plc, will identify and offer only high credit quality asset backed securities that meet clearly defined investment guidelines. Each asset must be rated by Moody's. Grampian will be administered by investment managers within HBOS Treasury Services.

The main risk of credit arbitrage vehicles like Grampian is the sudden default of an ABS security, which is defined as the rating falling to Caa1 or below. Liquidity banks are required to provide funds only in the amount of non-defaulted assets. The downgrade risk is mitigated in Grampian by (i) dynamic credit enhancement sized according to the credit quality of the portfolio and (ii) a prohibition on the issuance of ABCP if the conduit does not have the required enhancement or is otherwise out of compliance with its investment policy. Based on its initial proposed asset portfolio, Grampian's required enhancement will be $60 million. However, it will actually have enhancement of $180 million. To the extent that the actual enhancement is more than the required amount, Grampian can be considered to be over-enhanced, which is a strong feature of this program.

The Prime-1 rating of Grampian is primarily based on: the high credit quality of the bonds purchased; the requirement that the portfolio meets certain predetermined guidelines regarding rating, obligor and country concentrations; the initial credit enhancement; the requirement to increase credit enhancement if the ratings on one or more bonds are downgraded below a certain level; and the abilities of HBOS Treasury Services plc, or its related companies, in their roles as administrator, investment advisor, liquidity agent, hedging agent and dealer.

For further details, please see Moody's press release dated July 16, 2002.

THE RATINGS OF THE FOLLOWING ABCP PROGRAMS WERE CONFIRMED BY MOODY'S DURING THE PERIOD JULY 11, 2002 THROUGH JULY 18, 2002:

CREDIT SUISSE FIRST BOSTON'S A.M. FUNDING CORP., LIMITED ADDS EURO CP FUNDING CAPABILITIES

A.M. Funding, a fully supported post-review multiseller ABCP conduit sponsored by Credit Suisse First Boston (Aa3/Prime-1/C), recently added Euro CP issuance capabilities. In addition to U.S. dollar- denominated ABCP, AM Funding can now issue asset-backed commercial paper denominated in euros or pounds sterling up to an authorized amount of $10 billion or its equivalent. The liquidity lines and ABCP issuance must be denominated in the same currency as each funded asset, so there is no currency risk. Any timing risk associated with funding in either the United States or European markets is accommodated by the fact that CSFB, as liquidity provider and committed swing-line bank, has locations in Zurich and New York, respectively. Currently, A.M. Funding has $285 million of ABCP outstanding.

BUNGE ASSET FUNDING CORP. REDUCES PROGRAM LIMIT TO $600 MILLION

Bunge Asset Funding Corp. ("BAFC"), a fully supported, single-seller conduit sponsored by Bunge International Limited (not rated by Moody's), has lowered its program limit from $930 million to $600 million. BAFC uses the proceeds of ABCP to make loans to various Bunge subsidiaries to fund their working capital requirements. The ABCP is fully supported by liquidity provided by a syndicate of Prime-1-rated banks. JPMorgan Chase is the liquidity agent and also the administrative agent for BAFC.

Credit enhancement, in the form of a letter of credit (LOC), is provided by three Prime-1-rated banks and is sized based on the long-term debt rating of the guarantor. The LOC does not benefit ABCP investors; rather, it is drawn to reimburse the liquidity banks for their outstanding liquidity loans. It is currently sized at 12.5% of the program facility amount. BAFC is now authorized to issue up to $600 million of ABCP.

CDC'S EIFFEL FUNDS $50 MILLION INVESTMENT FUND LOAN

Eiffel Funding LLC, the partially supported, multiseller conduit sponsored by CDC Financial Products (Aaa/Prime-1), funded a $50 million loan facility benefiting various subscribers to an unrated investment fund. Eiffel will make loans to the fund, which will invest loan proceeds on behalf of subscribers. Serving as collateral for Eiffel's loans is a pool of subscription commitments by various subscribers. Moody's is currently in the process of rating the fund's largest subscriber.

The transaction is supported by a liquidity facility that will fund the face amount of ABCP issued against the facility provided certain credit events do not occur. As long as the fund's largest subscriber is not rated by Moody's, investors are exposed to the risk that an A1-rated Canadian province is suddenly downgraded below Caa2. If Moody's does publish a rating for the largest subscriber, and that rating is at least Aa2, then investors are exposed to the risk that the subscriber's rating is suddenly downgraded below Caa2. If the reference credit is downgraded below A1 or Aa2 respectively, but the rating is above Caa2, then the transaction becomes fully supported by liquidity. In each case, Moody's believes the risk borne by ABCP investors in this transaction is consistent with the Prime-1 rating assigned to Eiffel's ABCP.

CDC will increase Eiffel's program level credit enhancement by 10% of the amount of ABCP issued to fund this transaction. Eiffel is currently authorized to issue approximately $3.2 billion of ABCP.

SUMITOMO MITSUI'S MANHATTAN ASSET FUNDING UNWRAPS A $70 MILLION TRADE RECEIVABLE TRANSACTION

Manhattan Asset Funding Co. LLC (Manhattan), a partially supported, multiseller conduit sponsored by Sumitomo Mitsui Banking Corp. (SMBC) (A3/Prime-1/E), removed full liquidity support from a $70 million trade receivable transaction with an investment-grade-rated electronics manufacturing company. Pool-specific credit enhancement in the form of overcollateralization has a floor of $3 million but must be at least 25% of the funded amount. There is also a deal-specific liquidity management plan in place that further protects ABCP investors.

Program-level credit enhancement has been increased in the amount of 10% of the outstanding purchased lease receivables for this transaction. Manhattan is authorized to issue up to $5 billion of ABCP. Currently, Manhattan has about $1.09 billion in outstanding ABCP, with $170 million in program-level credit enhancement.

ING'S MONT BLANC ADDS Aa2- RATED YEN- DENOMINATED CONSUMER LOAN DEAL

Mont Blanc, a partially supported, multiseller program sponsored by ING Bank (Aa2/Prime-1/B+), recently added a Aa2-rated transaction. The yen-denominated deal is equivalent to $27 million of senior beneficial interest in an amortizing pool backed by consumer loans. The transaction is a restructuring in master trust form of an asset pool funded in Mont Blanc since February 2000. ABCP investors are protected by 18% of subordination, in addition to excess spread. As long as deal-specific levels of credit enhancement are sufficient to cover losses, liquidity funds for principal and interest on the ABCP issued to make this purchase. Other investor protections include program-level credit enhancement in Mont Blanc which is currently at its $300 million floor. Mont Blanc currently has purchase commitments totaling $10.5 billion.

SUN TRUST'S THREE PILLARS ADDS $250 MILLION CLASS A VFC FROM CREDIT CARD MASTER TRUST

Three Pillars Funding Corp., Sun Trust Bank's (Aa2/Prime-1/B+) partially supported, multiseller ABCP conduit, has added a partially supported, $250 million Class A variable funding certificate issued by a private label credit card master trust. The originator of the credit card receivables is a department store chain with stores located primarily in the southern and mid-western regions of the United States.

A subordinate Class B Investor Certificate, which must always maintain a principal balance equal at least 17% of the aggregate outstanding principal balances of the Class A and Class B certificates, provides first loss protection to the Class A VFC. Also, Three Pillars' program-level credit enhancement was increased by $25.5 million. Liquidity is provided by Prime-1 rated Sun Trust Bank to cover the face amount of ABCP, and funds based on good assets. Three Pillars is now authorized to issue up to $3.46 billion of ABCP.

For a more detailed description of these ABCP programs, see Moody's GLOBAL ASSET-BACKED COMMERCIAL PAPER MARKET REVIEW, which is published quarterly.

New York
Samuel Pilcer
Managing Director
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Letitia Accarrino
Vice President - Senior Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

MOODY'S ABCP RATING ACTIONS FOR THE SEVEN DAY PERIOD ENDED JULY 18, 2002
No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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