In an unusual move to douse investors' fears over deteriorating receivables in two First North American National Bank deals, Banc of America Securities recently put up a $ 1 billion irrevocable letter of credit to ensure that investors are made whole. However, surety provider Ambac will be the one to put out the fire should the worst case scenario come to pass.
The defeasance provision was enacted in response to negative one-month excess spread levels reported on the FNANB trusts as losses rose to 21.9%, up from 15.4% a year prior. Losses were due in large part to a failure to add new accounts since the trust was sold at the end of last year, sources said. As a result, the company decided to defease the trust's 2002-A and 2003-A series. Both of these series came with an Ambac wrap, and those insurance policies will remain in place under the terms of the defeasement, leaving the monoline to absorb the losses.