And then there were three. Asset-backed commercial paper (ABCP) markets are used to constantly churning short-term debt, but risk-wary investors recently changed that for markets in the U.S. and Canada. Now, it seems that the European ABCP market is beginning to feel the effects of the short-term debt liquidity slowdown.

Last weekend, Moody's Investors Service downgrade the P-1 rating of ABCP notes issued from Golden Key Ltd., and Golden Key U.S., LLC, which issue Euro CP and U.S. CP, respectively.

Launched in November 2005, and managed by Avendis Financial Services, the programs use their proceeds to invest in a portfolio of US residential MBS, according to the rating agency.

"The rating downgrade follows Golden Key's breach of certain liquidity and capital adequacy tests, declines in the market value of its assets, and a current inability to draw under its liquidity line," according to Moody's.

The rating action also follows three weeks of turbulence in the ABCP markets, beginning about three weeks ago with the destabilization of U.S.-based ABCP conduits and structured investment vehicles.

Last Monday, yields on ABCP paper with 30-day maturities rose for the fourth straight day, as frightened investors shifted their money into the relative safety of U.S. Treasuries, reported Bloomberg. Average yields on ABCP rated A-1 rose nine basis points, to 6.09 percent, the service reported.

Both Golden Key vehicles partially supported and invest in U.S. residential MBS, precisely the types of vehicles that are seeing the most instability in the U.S. market. As for the Canadian market, most of the trouble was centered on ABCP vehicles that were sponsored by specialty finance companies. At most risk were vehicles that were sponsored by such companies and which funded U.S. residential MBS.

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