With several new single-seller ABCP conduits proposed and/or slated, this year will likely mark the first uptick in the use of the structure since 1998.
In fact, the number of new programs could easily triple the amount launched in 2000, although that's hardly a major feat, as the pace has all but dried up in the last three years. For the past two years combined, there were just five new single-sellers, according to Standard & Poor's.
"It's hard to say that it's a trend, because the number of single sellers that are done in any given year is fairly low, but it definitely looks like we'll see more this year than we have in the last few years," said Thomas Fritz, a managing director at S&P.
Some industry pros are attributing the renewed interest in the program structure to revisions in Financial Accounting Standards Board 140, which is generally expected to facilitate the use of securitization as a tool for balance sheet management, as it standardizes the guidelines for a qualifying special purpose entity (QSPE), required for true sale. However, the single-sellers that have already launched this year were arguably not balance sheet motivated.
For example, FCC II, a single seller deal which closed in January, was used to finance approximately $50 million in credit card accounts that First National Bank of Omaha purchased from parent company First National of Nebraska, which acquired the accounts when it acquired originator Infibank. FNBO is a triple-B rated institution, and financing in the debt market would have been pricier.
Still, players anticipate that the QSPE guidelines of FAS140, combined with weakening corporate credit, will contribute to the overall growth of the ABCP market, and could be motivating some of the single-seller deals currently in the works. However, most of the added volume will wind up in the multi-seller conduit market.
"I think for large companies, that have a big receivables base and the wherewithal to administer a conduit, if they can get the liquidity, there are some economies of scale to setting up a single-seller," said Kevin Ryan, a vice president in the ABCP group at Morgan Stanley. "I've taken more calls in the last six months from people interested in setting up single sellers than I ever have before, but when you start running through the costs of setting up liquidity banks, paying the rating agencies and legal fees, etc, it becomes a scale issue. Do you really want to put in the time and money, or just go into an established conduit?"
Regulatory and balance sheet
Also a noticeable trend, banks are continuing to set up securities arbitrage-like programs for regulatory capital relief, noted Sam Pilcer, head of the ACBP group at Moody's Investors Service.
"Regulatory relief for holding highly rated securities can be very important to banks," Pilcer said. "If they hold it on balance sheet, they get hit with an 8% capital charge, and if they hold it in a conduit, they basically have no charge."
Although these programs technically involve one seller, Moody's considers securities arbitrage conduits as a separate program type.