LONDON - As European banks get ready for the road towards full implementation of Basel II, the number of ABCP program restructurings for Basle II reasons remain low. This was the consensus at the Moody's Investors Service's and the International Primary Market Association's Fourth Annual ABCP and SIV Conference held here last week.

Panelists at last week's gathering said it is still not certain how the final Basel II regulation will shape up, so they anticipate more changes ahead. This is why timing issues are not a concern yet and ABCP players have placed little emphasis on premature restructuring efforts.

"We are likely to see the type of assets securitized changing with the minimization of capital the primary goal," said Paul-Micheal Rebus, a partner at McDermott Will & Emery UK LLP. "The types of structure that are being put in place is driven by Basel II. On the securitization side, there will be further consideration on how these assets will be securitized."

Solutions and programs

Under Basel II, all banks will hold capital against liquidity facilities. Banks using the internal ratings based model will bypass the liquidity issue of whether, under the new accord, liquidity could be considered "eligible liquidity" or seen as having a short maturity. And for banks exploring the reduction of traditional liquidity facilities, one possible solution is launching more extendible notes for European programs.

Extendible CP to date has been slow to take off in European conduit programs but Basel II could change that, panelists at the conference said.

There has been moderate growth in European extendible CPs - of the 20 names that Moody's rates, only one conduit issues these notes at the moment despite all of them being eligible to issue extendible notes.

"There has been a lot of authorization but not much issuance going on at the moment," said Kathryn Kerle, vice president and senior credit officer at Moody's.

The U.S. experience

In the U.S., the market for extendible commercial paper has seen substantial growth since its introduction in 1995. Extendible notes currently account for about 10% to 11% of outstanding ABCP in the country.

According to Moody's, there is over $100 billion outstanding across 50 programs. And while European exposure is still limited, it is expected to grow on the back of the regulatory changing environment.

(c) 2006 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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