Duff & Phelps is set to drop its requirement that for an asset-backed securitization from a non-triple-A jurisdiction to win a triple-A rating it must incorporate an originator-funded offshore liquidity reserve until it pays down, according to an upcoming report from the agency.

Instead, Duff may only insist that the offshore reserve is temporary, with originators obliged to "fund the liquidity reserve for several months at first, and if the local currency rating drops to a certain level, the reserve would fill up with the excess cash flow of the deal," explained Greg Kabance, vice-president of international structured finance in Hong Kong. "This way, the bankers and issuers are happier because it makes the deal more economical, and we are comfortable because we're setting the trigger tight enough so that it's still investment grade."

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