With the addition of an Ambac wrap, last week's 12b-1 fee securitization from Citibank, N.A. - the sector's only remaining issuer - experienced wider distribution and tighter pricing than any previous mutual fund fee ABS. The $133 million Hedged Mutual Fund Fee Trust series 2004-2 deal, with an eight-year final maturity and 2.8-year average life, priced via Citigroup Global Markets at 25 basis points over one-month Libor - 110 basis points tighter than April's double-A rated senior/subordinated deal.

"This transaction had the same turbo structure as previous hedged deals," said Citigroup Managing Director Paul Donlin, noting the natural double-A structure. "We wrapped this to triple-A in order to broaden the investor base and sell bonds to domestic investors, who may not have been able to buy double-A rated mutual fund fee deals," he added.

Due to the favorable execution in the most recent offering, Donlin speculated that the next HMFFT offering, tentatively slated for this fall, will likely also feature an Ambac wrap.

Donlin said that most of the investor base for HMFFT 2004-2 were first-time 12b-1 fee ABS buyers, with more domestic participation than any of the four previous offerings. Citing the private nature of the Rule 144A deal, he did not specify geographic distribution.

The double-A rated series 2004-1 deal priced at 135 basis points over Libor. When first introduced in March 2003, the first-ever HMFFT deal priced at 285 basis points over Libor for the double-A rated paper. There has been steady tightening

While it is unclear how long it took Citigroup to assure potential surety providers to take the credit risk and wrap the natural double-A to triple-A, bankers on the offering "spent a lot of time educating the surety provider," about the structural protections built into the HMFFT trust, which prevent net-asset-value depreciation in the event of an unexpected drop in the global equity markets.

HMFFT 2004-2 is backed by 12b-1 fees purchased by 221 different funds, from six mutual

fund managers, according to a presale report issued by Standard & Poor's. Citibank then purchased protection for declines in eleven indexes, with the bulk of the

exposure (34.19%) to the S&P 500.

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