Newcastle Investment Corp., a real estate investment and finance company, is planning its debut in the ABCP arena with an extendible note asset-backed commercial paper program that will execute repurchase agreements (repos) for its high quality portfolio of agency mortgages, ARMs and hybrid mortgage securities. Furthermore, it introduces a credit enhancement technique that differs distinctly from existing SLN programs.
The conduit, Windsor Funding Trust, will issue secured liquidity notes and use the proceeds to enter in repos backed by agency and triple-A rated adjustable-rate and hybrid adjustable-rate residential MBS owned by New York City-based Newcastle Investment Corp. Those assets will take the form of trust certificates that represent beneficial interests in the underlying securities. SLNs issued from Windsor Funding will have maturities of up to 250 days. If the conduit does not have sufficient funds to repay maturing SLNs, Windsor can extend the notes up to an additional 95 days, at a stepped up maturity rate of Libor plus 25 basis points.
Windsor Funding Trust uses two forms of credit enhancement: investment subordinate notes and overcollateralization to support those notes. If certain triggers are breached and not amended, the program will liquidate collateral. Similar to other SLN programs, extended notes can be redeemed at any time.
Windsor Funding, however, goes the extra mile. If Windsor Funding Trust breaches OC triggers and does not get back in line, all notes must be repaid at any time, regardless of whether or not they were extended or whether they reached their expected maturity dates.
"This is different from other SLN programs in the market in which notes that have not been extended cannot be repaid prior to their expected maturity," according to Moody's Investors Service, which gave the conduit a P-1 rating. The program also received an F1+ rating from Fitch Ratings.
Newcastle Investment Corp. is well acquainted with managing complex, short-term debt. It began managing commercial real estate CDOs in 1999, and currently handles nine of the transactions - some with CP portions - amounting to about $5 billion, according to Fitch.
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