Commercial credit insurance is playing more of a key role in EMEA ABCP transactions, said Moody's Investors Service in a recently published report. According to its Credit Insurance Agreement in EMEA ABCP Transactions, around 40% of the new trade receivables deals funded by EMEA conduits in 2004 and 2005 utilize credit insurance, up from 25% in 2003. Moreover, Moody's said it expects this trend to continue as the use of insurance can help originators achieve off-balance sheet treatment under revised IAS39, which states that the seller must transfer substantially all risk of the receivables.
However, complications arise because the form of issuance policy typically provided by an issuer to its corporate clients is not well suited for an ABCP conduit, said Edward Manchester, who authored the report. "Certain modifications are needed to ensure - to a Prime-1 standard - that the conduit will have full and timely access to the required amount of credit enhancement."