Little is known about the fate of the equity buyers in Eureka Securitization - though, through non-confirmable market buzz, it appears the Parmalat receivables have been written down to some extent, and that Citigroup Inc. does not intend to pass the loss on to the expected loss investors. Again, non-confirmable.

Citigroup has declined to comment, and did not refer to the situation in its 8-K earnings preview released last week. Nor did the situation come up in the conference call that accompanied the 8-K.

If by documentation, the equity is on the hook for the Parmalat write-down, Citigroup intervening could be negative to the ABCP market, as it could potentially invalidate the expected loss solution that has been employed to satisfy off-balance sheet treatment of ABCP conduits under Financial Interpretation No. 46 (see ASR 3/29). Officials at both the American Securitization Forum and The Bond Market Association declined to comment on the issue , even conceptually.

In speaking with senior bankers that have also used the expected loss note strategy, during the race to issue EL notes prior to implementing FIN 46, information was scarcely shared between the banks (entirely characteristic of Wall Street culture). Because this is no standardized structure, it makes analysis from anyone not involved in the specific transaction pure speculation.

Most agree, however, that if the loss had occurred while the assets were in the conduit, the EL holder would get hit. Auditors, apparently, were careful to include fraud as an event triggering a loss to the noteholders. (KPMG, which oversaw Eureka's issuance, was specifically named as one of these auditors.)

However, if the asset was purchased out of the conduit at an amount not greater than fair value before a loss or fraud was proven, then the bank might get hit. The problem here is defining fair value. Would Parmalat receivables - offered just days after senior managers were arrested - sell at par? Is there a secondary market for ABCP assets?

Citigroup purchased the receivables out of Eureka in November 2003, around the time that Parmalat executives were arrested. It's believed these receivables amounted to about $200 million.

Some feel that in this situation, it's entirely on Citigroup's shoulders to provide transparency when the matter is settled, because the precedent could be so important to the industry.

Citigroup has been mute on the issue since mid-January, when it was disclosed that the firm would take $241 million in trading losses, charged in its full-year 2003 earnings. Officials declined to comment. Citi also said that its total exposure to Parmalat was $689 million, according to published reports.

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