As the Canadian ABS market expands, Services Financiers CDPQ, a Montreal-based firm that promotes and develops Quebec's mutual fund industry, along with Toronto-based Coventree Capital is set to bring mutual fund-fee securitization into Quebec, starting with a transaction likely to hit second quarter.

"What we have done is developed a product that will come to market either as a term or a commercial paper transaction depending on what is best for the particular client," said David Ellins, a principal at Coventree.

Though Ellins did not elaborate on the structure of the transaction, he said that future deals would range from $5 million to $50 million. "You don't see a lot of mutual fund deferred sales commission securitizations anymore," he noted. "But we have come up with something that does appear attractive both from a rating agency perspective and a client perspective."

The ability to securitize mutual fund fees is important because currently mutual fund companies are forced to pay high rates to their banks to access funding, Ellins explained.

"In general, the fund pays 5% of the commission for the representative and they have to spread the amortization paid for the first year to five to six years," said CDPQ President Serge Remillard.

"For a new family fund, it's difficult to have a loan or a securitization because it's not so evident for banks to evaluate the real financial risk linked to the asset or the new balance sheet of a new fund." Remillard added "With Coventree, we will build an operation dedicated to the securitization of the deferred sales commission."

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