Bank of America is planning to launch a partially supported asset-backed commercial paper conduit with the flexibility to buy ABCP debt from other vehicles as well as non-dollar denominated assets.
The vehicle is called Enterprise Funding Co. and will have a program limit of $12 billion. Assembled using very traditional ABCP techniques, Enterprise will be able to invest in a broad range of assets, to be financed by issuing ABCP with a maximum tenor of up to 270 days.
Enterprise can also purchase top-rated ABCP from other conduits that have been specifically approved by the rating agencies monitoring the program, according to Moody's Investors Service, which gave the program a Prime-1 rating. Standard & Poor's rated Enterprise A-1+', and Fitch Ratings branded it F1+'.
If Enterprise's program managers decide to buy ABCP from other vehicles, the maturities of the purchased ABCP must match those of the ABCP that Enterprise issued in order to facilitate the purchase, according to Lisa Singman, a senior analyst in the ABCP group at Moody's. On the day Enterprise's ABCP matures, if new ABCP is not used to repay the maturing ABCP, then Enterprise's maturing ABCP would be repaid from the cashflows from the purchased ABCP, Singman said. The matching maturities eliminate the need for Enterprise to have a separate liquidity facility in place to repay ABCP that was issued to purchase those assets.
Although the feature is not completely new to the ABCP sector, and a lot of bank sponsors write the feature into their programs, they do not all require that the maturity of the ABCP is matched to the paper issued. In those cases, those vehicles would need third-party liquidity support, Singman said.
The program's liquidity facilities are provided by liquidity asset purchase agreements from Bank of America and other top-rated banks, and there will be separate liquidity facilities for each asset interest. The liquidity facility can be used to repay the face amount of maturing ABCP that cannot be rolled over, minus the amount of defaulted receivables.
The bank will also provide a $50 million uncommitted swing-line liquidity facility that can be used for any purpose. However, all payments on swing-line advances will be subordinate to ABCP, unless the advance was used to repay maturing ABCP, said Moody's.
Enterprise's launch comes as the amount of ABCP outstanding continues to either plateau or decrease. According to statistics on outstanding ABCP from the Federal Reserve, the amount of outstanding ABCP as of April 9 was $780.8 billion, near the year-end 2007 levels.
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