SuperLumina Funding, a newly rated multi-seller ABCP conduit, plans to fund about $1.25 billion in U.S. dollar, triple-A rated new-issue CDOs as its first course of business.
Last week Moody's Investors Service authorized SuperLumina on a prior review basis to issue $12.5 billion in ABCP. Standard & Poor's is expected to announce it has rated the conduit as well. The non-bank sponsored vehicle, structured and managed by International Asset Transactions LLC, is more than three years in the making.
IAT had originally planned to launch a program in 2001, but was postponed by the altered markets post-Sept. 11, followed by a string of headline corporate failures. In 2002 and 2003, IAT stood on the sidelines through the regulatory and accounting changes, specifically those that led to the Financial Accounting Standards Board's FIN 46 and FIN 46R.
"We wanted to wait until the dust had settled," said Gus Udo, president and chief executive officer of IAT. Now that the conduit has been rated, IAT is in ramp-up mode, hoping to quickly establish its conduit market footing. The company is looking to hire five to eight additional staffers with experience in credit structuring and conduit operations.
IAT is taking a strategy similar to other new non-bank sponsored conduits that offer in addition to excess capacity a balance sheet not adverse to consolidation. Earlier this year, Promontory Asset Finance Co. launched Freedom Park, which also takes advantage of the changing regulatory environment, as well as the changing risk appetite of investment banks (see ASR 4/5).
"The focus [of SuperLumina] is really to provide additional capacity for banks and their customers," IAT's Udo said. "We are effectively re-underwriting in a way somewhat akin to reinsurers and monolines."
In general, banks sometimes seek out third-party conduits to fund clients that they are overly exposed to or industries they are overexposed to which allows banks to continue relationships with credits that have already filled their single-name limits.
SuperLumina will focus on trade receivables, both domestic and cross-border, as well as securities. Often domestic manufacturing companies generate cross-border receivables as they operate outside the U.S.
SuperLumina has several unique characteristics. For one, the conduit will not have program-wide credit enhancement, and each deal will be supported by independent credit enhancement and independent liquidity. "Our model is really to disaggregate the risk components currently associated with conduits," Udo said. We won't have one entity providing liquidity or credit enhancement. Whoever is the banker doesn't necessarily have to bring liquidity and credit. That should help the banks address consolidation issues."
SuperLumina is structured in two parts: the origination or purchase vehicle is called SuperLumina Assets, which borrows from SuperLumina Funding, the ABCP issuing vehicle. SuperLumina's loans to SA are matched to the term of the CP.
Also unique, SuperLumina Assets, an offshore SPE, is domiciled in Ireland under Irish Law. Beyond the tax incentives, SA is based in Ireland to facilitate IAT's eventual expansion into the Euro CP market.
An Ireland-based SPE is "more attractive to the investor base within the European community, as they have their own framework," said Udo. "By being within that framework, we prepare ourselves for that subsequent stage."
Also down the line, IAT is planning to structure an MTN component to SuperLumina. Further, the company intends to launch a non-rated investment fund that can complement the ABCP vehicles by purchasing lower credit assets, such as the subordinate pieces of CDOs, or the sub components associated with trade receivable facilities.
Deutsche Bank Trust Company Americas is the administrator and collateral agent for the two existing vehicles (SuperLumina Funding and SuperLumina Assets). IAT is a privately owned company, established in 1998.
Elsewhere in new Conduits
Thornburg Mortgage recently launched an extendible, hybrid ARM-backed ABCP conduit, similar, some say, to Friedman Billings Ramsey's Georgetown Funding, which ASR honored in its 2003 "Achievements in Securitization" issue.
The vehicle, called Thornburg Mortgage Capital Resources, is authorized to issue up to $5 billion in CP. Thornburg is structured with zero liquidity support, but is subject to market value haircuts and mark-to-market triggers. In an extension event, TMCR liquidates the corresponding mortgages and the CP is repaid within 10 days.
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