Despite a turbulent equity market, Constellation Financial Management was able to price its $146 million 12b-1 fee ABS issue in late June via Bear Stearns. The deal was initially sized at $290 million, but due to market conditions was scaled down. The Aa2'/AA' (MDY/FTC) rated 2.75-year average-life deal cleared at 175 over one-month Libor.

The single offered tranche deal reportedly has approximately 9.91% in overcollateralization. FEP Receivables Funding is securitizing the 12b-1 fees or distribution fees associated with Class B shares of mutual funds. Different from past Constellation transactions, investors will benefit from the transaction having a downside floor via an Asian style put option.

Although Asian put options have been around a long time, using them in 12b-1 fee securitization is a new development.

The deal's marketing success largely depended on investors getting comfortable with the new Asian hedge added to the series. On May 16, Moody's downgraded sixteen tranches in six Constellation deals (FEP I, II, III, IV,V, and VI).

Bear Stearns and Constellation could not be reached for comment.

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