Contrary to what was reported in the June 28 issue, Duff & Phelps (DCR) is not dropping the use of an offshore liquidity reserve when rating securitizations above the local currency rating of the sovereign. Rather, it has modified its requirement to promote its use and provide additional protection to investors.
An offshore reserve account is still needed, but need not be fully funded at the onset of the transaction, with full funding only necessary if the sovereign is downgraded.
In the case of Hong Kong, DCR would be comfortable with six months of cash funded initially and if the sovereign is downgraded to the triple-B range, the reserve would fill to the required 18 months. Along with an offshore swap agreement, this mechanism will be used to protect investors from potential government intervention, said the agency.
The sizing of this reserve and the triggers would vary from country to country and transaction to transaction.
Since Moody's and Fitch IBCA do not require this added protection and Standard & Poor's does not normally rate beyond the local currency rating, DCR devised the mechanism along with the swap to help mitigate this risk and bridge the gap between the different agencies, it added. ASRI regrets the confusion in the original story.
Also, in an article in the issue of July 26, the pricing of the $200 million tranche in the deal for Mexican bank Banorte was given incorrectly. The tranche was wrapped by Asset Guaranty and was priced at 115bps over Libor.
