As anticipated, 12b-1 fee ABS have graduated from the traditional private placement market, with last week's closing of the first-ever Rule 144A mutual fund fee securitization from Citibank N.A. Making this jump possible is the integration of equity index put options into a securitization structure, buttressing collateral performance from sustained downturns in stock markets (see ASR 11/04/02).
Citibank's deal, $256 million of notes from the Hedged Mutual Fund Fee Trust 2003-1 via Salomon Smith Barney, consisted of $191.75 million of single-A rated, A class notes and $64.25 million of B class notes, also rated single-A. Both tranches have a seven-year term. Both remaining 12b-1 fee ABS issuers - Citibank and Constellation Financial Management - now use puts as hedges against stock-market volatility.