In This Issue: Basel II Creates An Array Of Possibilities For Global ABCP
Changing regulatory capital regimes and capital charges on liquidity provided to asset-backed commercial paper (ABCP) have led to a proliferation of conduit structures that minimize third-party liquidity costs. Issuance of extendible notes using the collateral's market value as well as the securitized assets' cash flow has accelerated considerably as we get closer to full implementation of the Basel II Capital Accord in different jurisdictions.New Asset Classes Boost The Growth Of Asset-Backed Extendible Notes:
The outstanding volume of assetbacked extendible notes continues to grow faster than that of the total asset-backed commercial paper market. Several factors are propelling this growth: regulatory capital charges on liquidity, continued investor acceptance of new and innovative programs, and increased participation from hedge funds and asset managers. Issuance Was Off To A Healthy Start In First-Quarter 2007:
The first quarter of 2007 marked the 10th consecutive quarter of growth in U.S. dollar asset-backed commercial paper outstanding. Rising multiseller conduit issuance was responsible for much of the increase, as singleseller and arbitrage conduit issuance both fell off slightly. Looking At ABCP Across A Spectrum Of Conduits:
An asset-backed commercial paper conduit is a special-purpose entity that issues CP, extendible notes, and/or term notes to finance the purchase of assets or to make loans backed by assets. Unlike term
securitizations, ABCP conduits may exist in perpetuity and do not wind down after a predetermined period. Ordinarily, a conduit will pay down maturing CP or extendible notes with the proceeds of newly issued CP or extendible notes. Analyzing Total Rate Of Return Swaps And Repos In ABCP And Extendible-Note Conduits:
Standard & Poor's has observed a marked increase in the number of asset-backed commercial paper transactions involving total rate of return swaps and repurchase agreements. Financial institutions use TRS and Repos to achieve various financial objectives, including, among others, off-balance-sheet accounting treatment and favorable regulatory capital treatment, and have increasingly turned to ABCP conduits, particularly those sponsored by nonbank entities, as counterparties in these types of transactions. Examining Methods For Mortgage Warehousing In European ABCP Programs:
Direct borrowing from banking institutions can become an expensive route for unrated mortgage originators that need to fund their ongoing mortgage originations. Looking for more cost-efficient funding solutions, mortgage originators have used a variety of alternative routes, one of which is the use of mortgage warehouse
facilities, typically via ABCP conduits that can access the short-term debt markets at attractive funding costs. | 
