Fitch Ratings said that the new Basel II guidelines will impact providers of liquidity support and credit enhancement to asset-backed commercial paper (ABCP) conduits; but it shouldn’t have any rating impact on these conduits.

The final enhancements to the Basel II framework published by the Basel II committee on banking supervision have subtly modified the proposals originally put forward in January 2009.

Under the new guidelines, regulators have considerable flexibility in how to classify structured finance exposures, which makes it difficult to make generalizations regarding the new rules and also harder for conduit sponsors to arbitrage them. However, this could also lead to inconsistencies between regulators.

Fitch's analysis indicates that the new Basel II guidelines largely eliminate the regulatory capital advantages of setting up an ABCP conduit. Both multi-seller and securities-arbitrage conduit sponsors are likely to face higher capital charges, particularly for any program-wide credit enhancement (PWCE) facilities they provide.

The new Basel II guidelines are likely to have a much larger impact on securities arbitrage conduits because of the greater likelihood that both the liquidity and PWCE facilities are considered re-securitization exposures (which face higher capital charges than normal securitization exposures).

It is likely that the new Basel II guidelines will result in the winding down of some ABCP conduits, while others may be less impacted or may restructure to survive. However for many conduit sponsors, the main motivation for setting up an ABCP conduit remains the desire to diversify sources of funding.  “For this reason alone, many conduit sponsors are unlikely to be deterred by the new Basel II guidelines,” said Fitch.


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