According to sources in the asset-backed commercial paper market, a small handful of the banks backing ANC Rental Corp.'s ABCP conduit failed to provide timely liquidity when the conduit ceased issuing overnight paper last week.

There was approximately $70 million in commercial paper outstanding which came due on Tuesday, following ANC Rental's filing for bankruptcy. Sources said there was a logistical and operational delay, and investors were paid one day late. Apparently, of the 13 banks providing liquidity, three failed to pay on time.

"It came down to timing and notification, and, physically, just a few banks were unable to wire funds on time," a source said. "Since it was paid off the next day, I don't think it was a huge deal. But I think it sheds the light on the operational aspects, notification and logistical events that need to take place to fund liquidity."

Sources at Credit Suisse First Boston, which is liquidity agent for the syndicate of banks on the conduit, declined to comment.

The event was noteworthy because it is rare for conduits to draw on their liquidity providers, said Thomas Fritz, of the ABCP group at S&P.

"In the normal course of things, it has probably not happened more than a dozen times," Fritz said, adding that the liquidity banks will be reimbursed as the assets in the conduit wind down.

The sequence of events indicates both the strengths and weaknesses of the ABCP market, Moody's Investors Service said in a statement released just before ASR's deadline. On the positive side, the banks did not challenge their commitments. However, the events prove that at least some conduits contain mechanical weaknesses, and are unable to meet the tight timing required in the event of drawn liquidity lines, Moody's said.

According to sources, ANC Rental Funding Corp. had reduced its amount of authorized ABCP issuance earlier this year, because the banks have been charging higher fees to provide liquidity. Further, it's rumored that certain banks within the syndicate had been trying to break off ties with the conduit since the events of Sept. 11, when it became clear that the rental car industry was trouble.

Early amortization

ANC Rental Corp. operates several rental car brands, including National Car, Alamo and CarTemps USA.

As per the deal covenants, ANC's existing term securitizations will begin amortizing, whereby all the cashflows will pass through the trust to noteholders until they are paid off, according to Shorie Afshar, an analyst at Moody's.

Except for two deals, all of the rated bonds have been wrapped to triple-A by either MBIA or Ambac. The triple-B subordinate bond in series 2001-3A was rated solely by Standard & Poor's, while the subordinate bonds of National Car Rental Financing 1996-1 were put on watch by Fitch in late September.

This early amortization is fairly significant as it will be the first rental car ABS winddown, and perhaps the first non-credit card early-AM to hit the visible market, market sources said, although it happens occasionally in the private market.

Rental car ABS and the industry as a whole have been under serious stress since the terrorist attacks, primarily because of the rental car industry's reliance on the airline industry. In fact, all three rating agencies came out with warnings shortly after Sept. 11 on the industry's exposure to the events.

For ANC, even prior to the travel and leisure downturns associated with Sept. 11, the company had indicated that it was facing liquidity issues, considering balance-sheet restructuring options, and/or seeking a buyer.

ANC was spun off from auto retailer AutoNation Inc last year. According to analysts, there is no publicly disclosed ownership or operational linkage existing between the two companies, although AutoNation does continue to guarantee certain obligations for ANC. Further details were unavailable as of press time.

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