Outstanding paper in the asset-backed commercial paper market might have pulled back since August, but new vehicles are still cropping up. Deutsche Bank, for one, launched a so-called feeder conduit called Montage Funding recently.
The multiseller program has an initial program limit of $5 billion and will buy only assets from, and issue ABCP
to, Deutsche's existing Gemini Securitization Corp., another multiseller program that was launched in 1992 and that buys term and trade receivables. Montage will not issue ABCP to the public market. All assets will be subject to prior review before Montage buys them. Gemini Securitization will issue ABCP to investors on a match-funded basis.
Deutsche launched Montage mainly because German banks are subject to capital limitations on their ABCP conduit programs. Therefore, Deutsche needed another vehicle to accommodate the overflow of assets from Gemini Securitization. The program's structure virtually mirrors other feeder conduits that Deutsche has launched throughout the years. Such programs include Nantucket Funding Corp., Sedona Funding Corp. and Saratoga Funding, according to Moody's Investors Service. Moody's gave the program a 'P-1' rating, according to information available at press time.
Montage Funding rolls out at a time when the ABCP market is beginning to stabilize after volatility that took hold in mid-August. Since then, the amounts of outstanding ABCP declined drastically as investors refused to keep rolling maturing ABCP in extendible-note vehicles. Although the extendible-note segment accounted for about $185 billion of the overall ABCP market by early August, it suffered from guilt by association in the eyes of some investors. As wary investors refused to roll paper, they drove down the market value of some assets. This impaired the market further, because it discouraged some issuers from relying too heavily on EN programs, say market sources. Spreads widened out to double-digit levels -- as much as one-month Libor plus 60 basis points, in some cases. In a span of about two weeks, the EN market was whittled down to about $50 billion, according to market sources.
The hit to EN ABCP also affected the overall ABCP market. By the end of September, the market had about $924.9 billion in ABCP outstanding, down from about $1.1 trillion at the end of July, according to the Federal Reserve.
Montage Funding does not rely on the market values of its assets for liquidity support.
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