JPMorgan Chase has amended its Ivory Funding Corp. arbitrage program, allowing it to issue secured liquidity notes up to a total of $10 billion. The flexible instrument can be issued in dollars or euros. In Ivory's case, it will have either a call or an extendible feature.
The notes will initially finance mortgage-related whole loans, broker lines of credit and home equity lines of credit, according to Moody's Investors Service, which maintains an Aa2/Prime-1/B+' rating on the vehicle. Each secured liquidity note-funded asset added to Ivory Funding Corp. must offer its own credit enhancement to avoid tapping into Ivory's program-wide credit enhancement, thus preserving its Prime-1 rating.
Multi-seller ABCP programs are unusual because of their demanding and complicated structures. Assets must be of very high credit quality and have substantial liquidity, said one market professional. Barclays Capital and ABN AMRO are among the few investment banks that maintain multi-seller ABCP programs.
In other ABCP activity last week, JPMorgan Chase added revolving lease facilities totaling $850 million to Falcon Asset Securitization Corp. and Jupiter Securitization Corp., two of its auto-finance portfolios. The transaction, accompanied by credit enhancement, allows Falcon and Jupiter to issue up to a total of $40 billion of ABCP, which will fund the revolving lease facilities. The financing capacity meets their demand for liquidity at a crucial time when both are facing ongoing management and credit issues. The auto industry's troubles exacerbate the term ABS market's wariness of residual risks tied to auto leases, which forces issuers to look for financing alternatives. Auto lease pools typically carry residual risks between 50% and 60%.
"It is a difficult concept for investors to sign up to," said one source, "but banks tend to be more sophisticated."
Market sources expect banks and auto lease issuers to lean more heavily on the ABCP market to meet their funding needs.
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