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Rating Action:

Moody's Assigns a Prime-1 Rating to Five ABCP Programs as Part of Money Market Investor Funding Facility

24 Nov 2008
Moody's Assigns a Prime-1 Rating to Five ABCP Programs as Part of Money Market Investor Funding Facility

$600 Billion Programs Can Issue $60 Billion In Commercial Paper To Implement Federal Reserve Facility

New York, November 24, 2008 -- Moody's has assigned a Prime-1 rating to the commercial paper issued by five asset-backed commercial paper programs (each an ABCP program) structured by J.P. Morgan Securities Inc. and the Federal Reserve Bank of New York (the Fed). These ABCP programs implement the Money Market Investor Funding Facility (MMIF) that was announced on October 21, 2008. As described in the material released by the Fed, the purpose of the facility is to provide liquidity to money market funds holding short-term obligations of banks and select other financial companies. These ABCP programs may purchase up to an authorized total of $600 billion in assets funded by as much as $540 billion in senior loans from the Fed and $60 billion in Prime-1-rated subordinate commercial paper.

Assets Purchased from Permitted Obligors

Each ABCP program will purchase short-term obligations such as commercial paper, certificates of deposits or bank notes with a remaining maturity of between 7 and 90 days issued by permitted obligors. Each ABCP program has ten permitted obligor groups (each group a permitted obligor), each of whom is a bank (and possibly including an associated bank holding company and certain named subsidiaries) or select financial firm which must be rated Prime-1 by Moody's. Currently each permitted obligor is also rated A1 or higher. No permitted obligor may represent more than 15% of the holdings of any ABCP program at the time of purchase after the initial ramp-up period. If any permitted obligor is downgraded below Prime-1, such ABCP program may not make any new purchases until all assets from the downgraded obligor have matured. The downgraded obligor would also cease to be a permitted obligor under the ABCP program. Permitted obligors may be added or removed from time to time with prior notice to Moody's. There is a limit of 10 permitted obligors in each ABCP program at any one time.

Money Market Funds May Sell Assets to the ABCP Programs

Each eligible seller of assets to the ABCP programs must be qualifying money market funds registered with the Securities and Exchange Commission and regulated under Rule 2a-7 of the Investment Company Act.

Purchases Funded by Senior Loan and Commercial Paper

Each ABCP program will fund its purchases with a senior loan from the Federal Reserve Bank of New York equal to approximately 90% of the purchase price of each asset. The credit facility is being provided under section 13(3) of the Federal Reserve Act. The remaining 10% will be paid to the seller in the form of commercial paper notes equal to 10% of the purchase price. The commercial paper will be "match funded," specifically issued with a maturity date on the maturity date of the corresponding asset. This will facilitate timely repayment of senior loan and the commercial paper from the proceeds of the funded asset. The senior loan facility will not be available for the repayment of the commercial paper notes.

The senior loan will be senior to the commercial paper in repayment. In the event of a default by any of the permitted obligors, repayment of all commercial paper will cease, and all collections will be used to repay the senior loan. On the maturity date of the longest-dated maturing commercial paper, all commercial paper holders will be paid pro rata from the funds available.

Rating Rationale

Moody's rating is based primarily on the following:

-The credit quality of the permitted obligors, all of whom must be rated Prime-1 and reviewed by Moody's prior to inclusion in the ABCP program;

-Portfolio limits which provide for no more than 10 permitted obligors in each ABCP program, each limited to no more than 15% of the assets at time of purchase;

-The 90-day maturity limit on eligible assets combined with a requirement to cease purchasing new assets if any permitted obligor is downgraded below Prime-1;

-The quality of the service providers, which include Global Securitization Services, LLC as administrator, US Bank N.A., as collateral agent, and JPMorgan Securities Inc. as referral agent;

-The bankruptcy remote structure of each ABCP program, which are Delaware limited liability companies that can engage only in those activities necessary to the support of the activities described.

Commercial Paper Is Subordinated to Loan from the Federal Reserve

The commercial paper issued by each ABCP program is subordinate in repayment to the senior loan from the Federal Reserve Bank of New York. Hence the commercial paper is a subordinate position in a portfolio of short term obligations from at least seven and as many as ten highly rated financial firms. Holders of the commercial paper benefit from some diversification as compared to holding the short-term obligations of any of the underlying permitted obligors. However, this benefit is outweighed by fact that they hold a subordinate position. Within the range of all firms rated Prime-1, the overall credit quality of the commercial paper is comparable to that issued by a company with a single-A term rating, though the actual permitted obligors are rated Aa or higher in all but a few cases.

Prime-1 Rating Linked to Short and Long-Term Ratings of Permitted Obligors

While the commercial paper's credit quality is consistent with a Prime-1 rating, that Prime-1 rating depends on both the short-term and long-term ratings of the underlying permitted obligors. Currently all of the permitted obligors are rated Prime-1 and A1 or higher. In evaluating the credit quality of the commercial paper Moody's also considers the long-term rating of the permitted obligors, the portfolio nature of the asset pool, the credit quality maintenance criteria with respect to the portfolio and the subordinate position of the Prime-1-rated commercial paper issued by the ABCP programs. If a number of the permitted obligors' long-term ratings were to be downgraded, even if they retained their Prime-1 ratings, Moody's would likely review Prime-1 rating assigned to the affected ABCP program.

Interest Coverage

The assets purchased by each ABCP program must yield at the greater of 2.30 per cent and 50 basis points over the Fed's Primary Credit Rate. The commercial paper will yield 25 basis points less than the assets they are issued to fund. The commercial paper will have the same maturity date as the assets so that no additional liquidity facility will be required.

The senior loan is issued on an overnight basis with a rate that will vary daily from the time the assets are purchased until they mature. The Federal Reserve has agreed to subordinate its right to receive certain amounts of potential interest payments. Specifically, if the primary credit rate rises above 2.25 per cent, the New York Federal Reserve's right to receive interest above 2.25 per cent will be subordinated to the right of the ABCP holders to receive principal and interest. This excess interest is due only after all outstanding commercial paper has been paid in full.

Administrator and Other Support Providers

Each ABCP program is a Delaware limited liability company structured to be bankruptcy remote. Global Securitization Services, LLC, (GSS, unrated) will act as administrator and manager for each ABCP program. GSS is a specialty services company that provides management and administrative services for a number of conduits rated Prime-1 by Moody's. US Bank N.A. (Aa1/Prime-1/A- ) will be the depositary, collateral agent and securities intermediary. J.P. Morgan Securities Inc. (unrated ) will act as referral agent and placement agent for each ABCP program.

Complete Rating Action

Hadrian Funding Co., LLC, program size $220 billion, authorized commercial paper $22 billion, commercial paper notes rated Prime-1.

Trajan Funding Co., LLC, program size $150 billion, authorized commercial paper $15 billion, commercial paper notes rated Prime-1.

Aurelius Funding Co., LLC, program size $140 billion, authorized commercial paper $14 billion, commercial paper notes rated Prime-1.

Antoninus Funding Co., LLC, program size $70 billion, authorized commercial paper $7 billion, commercial paper notes rated Prime-1.

Nerva Funding Co., LLC, program size $20 billion, authorized commercial paper $2 billion, commercial paper notes rated Prime-1.

Rating Methodologies

The rating methodologies used in reviewing these programs are described in "The Fundamentals of Asset-Backed Commercial Paper" (February 2003) and "CDOROMv2.4 User Guide," January 2008.

For more information please refer to the Moody's web site, www.moodys.com .

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

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

No Related Data.
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