For the first time since the Canadian securitization market came into existence, issuers are able to sell asset-backed notes to U.S. investors without dealing with withholding tax issues for non-exempt transactions. Elimination of withholding tax on arms-length payments of interest to U.S. investors came at a critical time for many Canadian issuers faced with few, if any, liquidity alternatives. Such issuers are now able to tap the term securitization market and extend the offerings to qualifying U.S. investors. The notes may also have credit enhancement in the form of a performance guaranty where the Canadian originator is a subsidiary of a foreign parent. These securities should be very attractive to U.S. investors looking for highly rated notes.
State of the Canadian ABCP Market - The August Freeze