Tighter credit conditions have prompted some corporations to turn to conduits where they borrow by staking their receivables as assets, according to one market participant who said the CDO market is still subdued.
"Corporates are looking for alternative options at the best rates,'' said Peter Gatehouse, associate director of Ogier, a legal and fiduciary services firm based in the Jersey Islands that are located in the English Channel off the coast of France.
At the same time, he said, "from our experience, there is nothing going on in CDOs. There is very little there.''
The Jersey Islands are a British territory but they are not part of the U.K. So, U.K. tax laws do not apply to the Jersey Islands because the isles' government sets their own tax regulations. The isles are tax neutral, meaning there are no Jersey withholding taxes on cash flows for structured transactions such as ABS, SIVs and MTNs. Issuing vehicles for conduits created on Jersey also do not pay taxes.
Ogier, a firm that dates back to the 1920s, has its main offices on the Jersey Islands. It is very active in structured products such as conduits funded in the ABCP market and medium term note programs. It is one of several firms operating on the isles that specializes in providing services to SIVs, MTNs and conduits as well as other ABS structures.
Gatehouse said his firm has seen fewer new conduits created since last summer, but existing conduits have become busier with loans backed by expected income earned by businesses as diverse as meat producers and auto parts suppliers.
"Those involved with receivables have seen more activity in the last six months,'' Gatehouse said, adding "There is reasonable demand for this funding from borrowers'' because the credit conditions are tighter since the credit crunch.
Meanwhile, when it comes to MTNs, there is a pickup in interest in these programs, especially unrated transactions. "There is a lot going to Asian markets, equity and debt instruments,'' Gatehouse said.
These MTNs issue notes that raise money, which is then put to work in a particular market or asset type. The notes are purchased by investors such as insurers.
MTNs are typically deals driven by investors, meaning reverse-inquiry transactions. So, for example, investors may choose an investment class or market they want exposure in such as the CAQ 40 or the FTSE.
"This year there has been a pickup in interest in medium-term notes issued by the MTN programs. More notes are being sold,'' according to Gatehouse.
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