Spiraling into the final weeks of the 2002, the slowdown in the ABCP market is perhaps pronounced, given two record months of issuance this time a year ago.

Indeed, last November and December saw significant upticks in outstanding ABCP, with $18.7 billion of growth in November, followed by a whopping $28.6 billion December, bringing ABCP outstanding to $745 billion, still the market's historic peak.

By comparison, outstanding ABCP inched up slightly in November to about $713 billion, which is a $1.46 billion, or 0.205% increase month over month, while the overall CP market, which closed November at $1.35 trillion, grew at about 0.733%, according to data from the Federal Reserve.

Last week, Moody's Investors Service released its third quarter review of the ABCP market, discussing several of this year's trends and concerns contributing to the slowdown. Uncertainty associated with the Financial Accounting Standards Board consolidation project has taken its toll on market sentiment, as it's possible that bank sponsors of multi-seller conduits will be instructed to take the assets onto their balance sheets. In such an instance, the bank would need to increase its cash against assets, which makes the ABCP vehicle less attractive.

Apparently the approach of the primary beneficiary for consolidation is doubly troubling for bank sponsors when applied after the primary "decision-maker" criteria.

In last week's FASB meeting, the board decided that the ability to make significant decisions will act as an "indicator" such that the decision maker would be more likely to be the primary beneficiary, according to Marty Rosenblatt of Deloitte & Touche.

The board ruled that variable interests in selected assets are variable interests in the entity, if the variable interests are a majority of the entity's assets.

Also, said Rosenblatt, a variable interest holder (in a variable interest entity) is the primary beneficiary if the holder either absorbs the majority of the expected losses, should some occur, or is the beneficiary of the expected residual returns (emphasis on "or"). Apparently a party can be the primary beneficiary while only satisfying the one of the two variable return tests (i.e., it is not required to have both the upside and downside risk).

Said Moody's, "It is likely in any case that the conduit market will survive, but will require some amount of restructuring to conform to the FASB requirements in order to avoid consolidation with the sponsoring banks."

Meanwhile, the credit strength of the conduits remains encouraging, Moody's said. For example, exposure to National Century Financial Enterprises in a small handful of conduits is not an investor issue. One conduit funded the bad seed out following the initial October downgrade. Another multi-seller conduit retains NCFE on a fully wrapped basis. Moody's noted that two market value programs with NCFE exposure have written the asset down to $0 for overcollateralization tests.

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