The fates of the two U.S. ABCP conduits administered by CIBC World Markets are still in question, though apparently CIBC is retaining the staff necessary to keep the conduits on course for natural amortization as the underlying facilities expire.
Of particular interest is the fate of the some odd $1.4 billion in senior CDO positions held in one of CIBC's conduits, much of which won't mature before the liquidity facilities expire. Whether or not CIBC will be permitted to renew the lines per its settlement with regulators is unclear (see below). Officials at CIBC did not return phone calls as of press time last Thursday night.
"Right now is probably not a bad time to cut their positions," said one market source. "In the current spread environment, that outcome would probably not be a bad outcome."
Meanwhile, it had been rumored that the bank was considering placing its conduit assets with other suitors or outright selling the two vehicles - Asset Securitization Capital Corp. ($6 billion) and Special Purpose Accounts Receivable Cooperative Corp. ($2.8 billion) - to another financial institution, though that doesn't seem the current plan of attack.
Rumors that CIBC clients are being poached out piecemeal seem exaggerated, according to sources at the rating agencies, which are keeping a close eye on the developments. "We had heard rumors to that effect as well, but that's just the opposite of what we are seeing," said sources at Fitch Ratings. Fitch has requested a list of all the assets in CIBC's conduits for surveillance purposes.
A rating agency source noted that other multi-seller vehicles in co-purchase programs with CIBC are increasing their portions of the deals, more akin to a slow, controlled wind-down than a fire sale. At the end of December, ASCC had approximately $6.2 billion outstanding, down a few hundred million from $6.5 billion at the end of November.
ASCC in particular has attractive clients, as the conduit only funds high-quality sellers. The conduit provides working capital lines, backed by vanilla assets like credit cards and trade receivables.
As part of its December settlement with Canadian and U.S. regulators, including the Securities and Exchange Commission, CIBC cannot renew the financing facilities in its conduits (see ASR 1/5). The settlement - which included an $80 million fine - was related to structured finance business CIBC had done with former energy trader Enron Corp., which failed spectacularly in 2001, as has since been the center of much financial regulatory scrutiny.
It's assumed that CIBC's conduit clients will eventually end up with other multi-seller ABCP conduits once their facilities are due, or else be funded from CIBC's balance sheet, which would change the economics of the arrangement for the bank.
In any event, the real question now is whether CIBC will be able to renew liquidity facilities it provides against some of the longer-term assets held in the conduits. Typically, liquidity agreements are for less than a year, while some of the assets in the conduits have two-year or three-year maturities, market sources said.
This is particularly the case for the $2.8 billion SPARC program, which is more than 50% backed by highly rated CDO notes, many originated by CIBC over the years. According to Thomson Financial, CIBC was lead underwriter on about $20 billion in CDOs since 1998, more than half of that backed by bank loans, and the rest in high yield bonds, non-performing loans and investment-grade bonds.
If CIBC is not permitted to renew the liquidity facilities it provides, the CDOs would need to be funded out onto CIBC's balance sheet, or liquidated in the secondary market.
While permitted activities are not set in stone, a liaison for the SEC is actually on site with CIBC's securitization group, to work through these types of challenges with the bank, sources said.
SG takes role in Rhineland
Last week, Bloomberg News reported that about 70 professionals associated with CIBC's structured finance business would be let go.
Separately, last week Societe Generale announced it would take over CIBC's role in Rhineland Funding Capital Corp., a program established and administered by IKB Deutsche Industriebank AG.
Rhineland initially had $1.6 billion in funding capacity, but has since grown to $7.2 billion. CIBC's participation in Rhineland was primarily out of its London office, sources said.
Meanwhile, last week three origination pros have moved over from CIBC's North American unit to SG. They are Dan Pietrzak, Marcus Edmonds and Neil Dalal.
SG also recently set up a small securitization team in Canada, headed by Chris Van Homrigh. Homrigh moved over two weeks ago from SG's Japanese securitization unit.