Last month Citibank priced its Project Securitization I CLO within original price talk (see ASR 8/6/01) despite a credit downgrade of its financial guarantor, Assurance Generale de France, a subsidiary of Allianz AG. Ironically the triple-A wrapped notes were rated one notch above its reinsurer.

Of course, the A class was rated triple-A on a stand-alone basis, based on credit enhancement levels and the underlying assets. Still, watching the multilines' ratings fall below the deals they're insuring may be an increasingly scenario in the securitization market, as transparency in the European insurance industry has equity investors demanding more value on returns. Entertaining a triple-A insurance rating means maintaining large pools of reserves that could be put to better use, say analysts at Standard & Poor's.

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