While on the ABCP theme, several structures were unleashed in 2003 that made substantial progress in the elimination of liquidity support.

Perhaps the most notable and ASR's runner-up program for innovation, Georgetown Funding, an ABCP conduit funding mortgage-backed securities for Friedman, Billings, Ramsey Group, is touted as the first program with zero outside liquidity, credit support or rated swap counterparty support. Merrill Lynch was the structuring agent on Georgetown. Standard & Poor's and Moody's Investors Service rate the CP A-1+/P-1.

With just a 10-day extension period, Georgetown's extendible notes are the shortest-dated in the market. The zero-liquidity requirement is based on the highly liquid portfolio of U.S. Agency MBS that collateralizes the conduit. The portfolio is entirely made up of adjustable rate mortgages, specifically 1/1, 3/1 and 5/1 ARMs. ABCP investors are provided a complete breakdown of the conduit's holdings, including CUSIPs, for each reporting period.

Georgetown also uses dynamic credit-enhancement levels based on the market-value assessment of its assets. For this conduit and similar ones in the pipeline, Standard & Poor's established a new program based market-value criteria. The mechanism requires incremental enhancement if price volatility, as measurement of a deviation from historical volatility, breaches a trigger level for a 10-day period. At that point, O/C must increase 50%.

Georgetown reached $3 billion in the three days after its launch, and is currently around $5 billion.

"Georgetown provided FBR with a significant alternative form of financing to its traditional repo financing provided by the broker-deal community," said a party close to the transaction. Essentially, the ABCP market becomes FBR's repo lines.


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