In what may be a first for the ABS market, MBIA has considered keeping ANC Rental Corp.'s securitizations afloat, sources indicated, rather than winding the deals down as was initially expected when the company filed for Chapter 11 bankruptcy in November, which - per the deal documentation - should have triggered an early amortization. MBIA declined comment.
Until Jan. 20, ANC had ceased making lease payments into its ARG Funding trusts, during which time deal reserves were passed through to investors to pay timely interest.
Currently, there is discussion as to whether it is legally sound to keep the wrapped tranches afloat, rather than have them start paying down principal early. Because MBIA has wrapped all but one senior tranche in ANC's six securitizations, the monoline is considered the controlling party in those deals. It is said that MBIA is working with ANC, and possibly the bankruptcy court, to negotiate and amend the terms of the transaction.
MBIA is essentially trying to allow the company to continue as a going concern, sources said. If this plays out, the monoline will be taking on the risk of a possibly less credit-worthy ANC. However, by virtue of the wrap, this risk is not passed on to the investors. It is said that some investors would welcome the prospect of the deals continuing through maturity, as marked in their books.
A source speculated that MBIA might be attempting this move to avoid any possible challenge to the legal structure of the securitizations. MBIA is working with the company on a plan to function under Chapter 11 and work through its debt restructuring.
While the insured tranches have been affirmed by Standard & Poor's, a triple-B piece from ARG Funding 2001-3 has been placed on watch for downgrade. On that particular series, Ambac provided the triple-A guaranty. Unlike MBIA, Ambac is letting the series early amortize, retiring the auction rate bonds as the lease payments come in. Currently, there is about $180 million in outstanding 2001-3 series.
The triple-Bs were put on watch by S&P because of the missed lease payments in November and December. Although deal reserves covered any interest payment shortfalls, the entire reserve account should have been passed on to investors when the early amortization trigger was hit, according to S&P.
Cited from S&P's statement: "In November 2001, Ambac instructed the Bank of New York, the trustee, to distribute the funds held in the series 2001-3 excess collection account ($28.4 million) to the senior noteholders on the next distribution data of each class of notes within the series 2001-3... However, approximately $710 million remains in the collection accounts at the leasing company level, pending a possible amendment to the indenture."
The amendment would revise the definition of "operating lease percentage", which is used to allocate funds to the various series during the amortization period triggered by ANC's bankruptcy, S&P said.