Finance CMBS
Oct 15, 2007
By: Barbra Murray, Contributing Editor
Having been nudged by the U.S. Department of the Treasury, a consortium of banks and investment managers--including Bank of America Corp., Citigroup Inc. and JPMorgan Chase Co.--have joined forces on an agreement in principle to create a liquidity facility for asset-backed commercial paper and medium-term notes issued by structured investment vehicles, or SIVs. The goal of the planned single master liquidity enhancement conduit, or M-LEC, is to help ease difficulties that have recently emerged in the refinancing of asset-backed commercial paper. According to some media reports, the fund could reach $80 billion.
Designed as a temporary solution, M-LEC, through the issuance of short-term credit instruments, will buy eligible highly-rated assets from selected SIVs in an effort to smooth the path for sellers to facilitate asset-backed commercial paper rollovers and accommodate pending redemptions. "From everything we're hearing, bank-sponsored programs are starting to fund closer to LIBOR," Everett Rutan, a senior vice president with Moody's, told CPN of the current state of the asset-backed commercial paper markets. "What's happening is consistent with what's happening in most markets. Spreads were extremely tight for the last five or six years, and now they're moving into a period where spreads are widening."
In a statement expressing support for the agreement in principle among the global banks and other financial institutions, the Treasury Department announced that the proposal "will complement other solutions investors and asset managers may utilize in committing and deploying capital to support more efficient markets." Specifics of M-LEC, such as the means by which it will assess asset qualifications, are still being negotiated. If all goes as planned, the liquidity facility could become available within the next 90 days.
By: Barbra Murray, Contributing Editor
Having been nudged by the U.S. Department of the Treasury, a consortium of banks and investment managers--including Bank of America Corp., Citigroup Inc. and JPMorgan Chase Co.--have joined forces on an agreement in principle to create a liquidity facility for asset-backed commercial paper and medium-term notes issued by structured investment vehicles, or SIVs. The goal of the planned single master liquidity enhancement conduit, or M-LEC, is to help ease difficulties that have recently emerged in the refinancing of asset-backed commercial paper. According to some media reports, the fund could reach $80 billion.
Designed as a temporary solution, M-LEC, through the issuance of short-term credit instruments, will buy eligible highly-rated assets from selected SIVs in an effort to smooth the path for sellers to facilitate asset-backed commercial paper rollovers and accommodate pending redemptions. "From everything we're hearing, bank-sponsored programs are starting to fund closer to LIBOR," Everett Rutan, a senior vice president with Moody's, told CPN of the current state of the asset-backed commercial paper markets. "What's happening is consistent with what's happening in most markets. Spreads were extremely tight for the last five or six years, and now they're moving into a period where spreads are widening."
In a statement expressing support for the agreement in principle among the global banks and other financial institutions, the Treasury Department announced that the proposal "will complement other solutions investors and asset managers may utilize in committing and deploying capital to support more efficient markets." Specifics of M-LEC, such as the means by which it will assess asset qualifications, are still being negotiated. If all goes as planned, the liquidity facility could become available within the next 90 days.
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