Citicorp North America is replacing its old asset-backed commercial paper conduit with Citibank Capital Markets Assets II LLC (CCMA), a single-seller ABCP program. The old transaction, called Citibank Assets LLC, was closed in December 1997.
The new ABCP program, which is rated A-1 plus by Standard and Poors and Prime-1 by Moody's Investors Service, is using proceeds from the issuance of commercial paper to buy hedge contracts between the bank and its customers. It has the capacity to issue up to $3 billion of commercial paper.
The new program was established to securitize these contracts, which are now pledged to the old program. The major difference between the old and the new conduits is the form of credit enhancement used.
While Ambac provided a surety bond on the old deal, West LB is providing a 99% second-loss credit default swap, along with a 1% first-loss protection provided by Citibank, which Moody's said is always available by the maturity date of the ABCP. However, under the credit default swap with West LB, the bank has 60 days to pay. Thus for defaults exceeding 1%, payments may have to wait for up to 60 days.
Similar to the previous program, Citibank will still be a party to the hedge contracts. However, according to S&P, the bank will be assigning a newly-formed special purpose trust called Citibank Capital Markets Trust II first priority secured interest in these contracts as well as rights to have positive cash flows under these contracts. The trust will be issuing investor certificates with a 270 -day maturity.
The first program is expected to wind down and be withdrawn from the market before funding for CCMA-II occurs.