Canadian company Drug Royalty Corp. is showing the market $42 million in single-A rated notes backed by pharmaceutical patent royalties. What the market isn't seeing - the pre-sold triple-B and double-B rated tranches - makes this the first senior/subordinated offering backed by this type of asset.

Wachovia Securities is leading the $68 million offering with an expected maturity of October 15, 2011, and a lone rating from Standard & Poor's. The pool is comprised of eight royalty streams stemming from Food and Drug Administration-approved drugs from highly rated marketers, including GlaxoSmithKline, Schering Plough and Amgen, among others, an S&P analyst said.

While there has been speculation in the market about whether fallout from the Vioxx situation would hinder progress in pharmaceutical-related ABS, the impact has been negligible, sources said. From a ratings perspective, the risk of an FDA withdrawal was always a consideration when looking at these types of deals, the S&P analyst noted. Furthermore, that risk is relatively low, as less than 2% of approved drugs have been pulled from the market during the past 25 years, the source added.

The assets in the portfolio have been in the marketplace for an average of 6.8 years, according to a pre-sale report from S&P. For the 12 months ended Dec. 31, 2003, they generated roughly $5.9 billion in sales and about $18.3 million in royalty and contingent payment right revenues.

Additional credit support is derived from initial overcollateralizartion of 26.6%, and an initial reserve account funded at closing for 2.5% of the cutoff date collateral amount, according to the report.

(c) 2005 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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