Mizuho Corporate Bank, a Tokyo-based commercial bank, has granted its asset-backed commercial paper conduit, Allstar Funding Corp., the ability to fund asset purchases by overdrawing on asset-backed, limited-recourse loans through a bank overdraft agreement.

This is an unusual feature for Japanese banks, and is a crucial one for Allstar and, ultimately, for Mizuho Corporate Bank. It gives the bank more lending flexibility for its clients. Even if future market circumstances thwart Allstar's ability to issue more ABCP, the conduit can raise funds using the Bank Overdraft Agreement, according to Moody's Investors Service, which affirmed the conduit's Prime-1 rating.

Mizuho Corporate Bank launched Allstar in October 1996. The program can issue 600 billion ($5.1 billion) in paper at a time to buy its assets. The conduit's assets are secured by the bank's portfolio of corporate client loans to operators in various industries, financial services firms, energy companies and wholesale and retail merchants. Underlying assets include yen-denominated loan receivables, trade receivables, promissory notes, and beneficial interests backed by corporate assets.

If Allstar Funding opts to overdraw funds from the asset-backed loans, it will make a series of arbitrage plays to pick up excess yield spreads from the purchased assets to repay the difference. If Allstar exhausts the assets' excess yields and still carries an unpaid balance on the asset-backed loans, then the conduit will transfer the assets to Mizuho Bank, thus satisfying any requirement to settle up any unpaid sums, according to Moody's.

By no means does the bank overdraft agreement give Allstar free reign to load up on asset-backed loans, which do not benefit from existing back-up line agreements that fully support the overall conduit program. Furthermore, the program's non-petition covenant and the scope of the limited recourse obligation for the asset-backed loan is the same as that for all of the assets in the program. Mizuho Corporate Bank will have recourse to the asset-backed loan payments to be made solely to the assets funded by that loan. The bank will assess the creditworthiness of prospective assets before Allstar buys them, and the assets are not required to have a minimum credit rating for inclusion in the program.

(c) 2006 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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