JPMorgan Chase restructured its 17-year-old ABCP program, called Jupiter Securitization Co., not - say sources familiar with the situation - as a defensive move against the currently volatile ABCP market, but so its sellers could avail itself of accounting procedures under FAS 46.
Jupiter Securitization issues ABCP to investors and uses the proceeds to finance trade receivables. Under changes already being made, the bank will create a trust, which will buy receivable facilities from originators. Instead of buying assets directly from sellers, Jupiter Securitization will buy certificates from the new trust, which will represent an undivided interest in the latter's assets.
The timing of the program's amendments comes during an unstable period in the ABCP market, marked by a dearth of liquidity and rapidly shrinking ABCP outstanding. Those familiar with the program, however, say the changes are about accounting rules. Indeed, Bank of America operates a similar ABCP conduit scheme, Yorktown Capital, which was launched in May 2003. As far as industry sources know, Yorktown Capital is the only other program structured this way.
"We understand that they did it for sellers who want to consolidate assets on their balance sheets," said a market participant familiar with the situation.
The new trust will buy sets of assets from the originators, called facilities. All facilities, and their related assets, will be handled separately as so-called silos, according to Moody's Investors Service, which maintained its P-1' rating for Jupiter Securitization. For each facility, the new trust will arrange a transaction-specific liquidity facility equal to 102% of the facility limit. Previously, Jupiter Securitization obtained credit enhancement equaling 10% of the outstandings for each asset, through an Ambac wrap and a letter of credit from JPMorgan Chase. Now the assets will receive programwide, fungible credit and transaction-specific credit enhancement on the program.
At least one thing will remain the same: the assets of the new trust will be the same as the assets currently held by Jupiter, Moody's said. JPMorgan, acting as the transaction's administrator, is in the process of moving all older assets out of Jupiter. The changeover is slated to be completed by Sept. 17, according to Moody's.
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