BARCELONA - A number of conference participants last week said they anticipate the asset-backed commercial paper market, particularly in the single-seller and extendible paper arenas, to experience growth this year as companies look to diversify funding sources.
"What we see the most of, in the near future, is the growth of extendible paper," said Andrew Jones, a managing director at Dominion Bond Ratings Service. "Extendibles have been common in single-seller programs, but now the entire industry is looking at this across the ABCP universe - including multi-sellers, who could use it as a back-up," Jones said.
Jones said multi-sellers such as Barclays, and perhaps ABN AMRO, are using extendible notes in areas beyond the warehousing arena. Issuers that choose to hold assets for a period of time before securitizing them in a term securitization often opt to use an ABCP conduit, but the structures can also be used for capital relief and bond refinancing, among other things. Volkswagen Financial Services is aiming to roll over assets from its asset-backed commercial paper conduit into a term ABS deal soon, said Peter Armstrong, head of treasury at Volkswagen Financial Services Ltd. VW created the conduit, backed by auto loans, in 2002. "It's a great stepping stone," Amstrong said.
ABCP issuers are also pursuing alternative funding strategies, including a technique that involves placing the proceeds from a synthetic CDO issuance into a low-risk investment in order to satisfy liquidity requirements for the ABCP, Jones said.
Increased program use is expected particularly amid an economic downturn, when extending notes could prove a more lucrative option than trying to tap the markets, speakers said. Subprime mortgage lender Accredited Home Lenders recently completed its $1 billion single seller extendible note conduit in order to diversify its funding away from reliance on warehouse funding lines; the lender said it was behind its peers in establishing the structure - which takes about a year to set up - but is worth the wait.
In the U.S., more than 12 extendible facilities, about 10% of the overall ABCP market, were issued last year, and most of those were completed in single-seller warehouse transactions. And in Europe, extendible paper is a "very hot topic" right now, said Stefan Bund, a senior director at Fitch Ratings, where the conduits have been used for fast rapidly repaid assets, such as trade receivables, participants said. Bund said he is aware of at least two extendible program ABCP conduits outside of the U.S.
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