Innovation in asset-backed commercial paper continues to be a story this year. While a small handful of conduits have been structured to fund mortgage receivables, Centex Corp. recently established Harwood Street Funding II, the first all subprime mortgage ABCP conduit, to fund its originations between term securitizations.
The structure allows Centex cheaper funds than would a warehouse line of credit, which mortgage finance companies traditionally use to store receivables.
It is likely that the market will see more deals like this one, said Raj Sodhi, of Moody's Investors Service.
HSF II has a $522.5 million limit on the secured liquidity notes, with a P-1 rating from Moody's, an A-1-plus from Standard & Poor's and an F1-plus from Fitch. There is also a $27.5 triple-B rated class of variable rate subordinated notes.
HSF II is the fourth ABCP program backed by mortgage assets, Sodhi said. The first, Bishop's Gate Residential Mortgage Trust, closed in 1998, followed by Centex's first mortgage conduit in November 1999, which was recently renamed to Harwood Street Funding I. Last July, Principal Financial Services structured a $1 billion mortgage ABCP conduit called Principal Residential Mortgage Capital Resources.
Lucent's problems cause ABCP hiccup
Also in ABCP news, corporate downgrades of Lucent Technology caused a rare wind-down event, where Lucent's CP conduit, Insured Asset Funding, will no longer be permitted to purchase receivables from Lucent, and will dissolve once its current portfolio is funded. The ratings on the outstanding notes remain unchanged.