Over the past six months the long anticipated new protections have been added to 12b-1 mutual fund fee securitizations, sources said. Hedged-collateral offerings should dominate the landscape in the coming year. Through the use of equity put options, issuers hope to mitigate the risk associated with the volatile equity markets. With these new protections, the sector should grow, via larger transactions offered overseas as well as in the U.S.
Developed in the booming stock market of the late 1990s, mutual fund fee ABS has fallen on hard times in the economic downturn. The sector as a whole accounted for 16.6% of the traditional ABS market's 102 downgrades in the first half of the year, according to Moody's Investors Service (See ASR 9/23/02), prompting issuers to seek protections against equity market volatility. Put options won out, due to the lack of active management needed to decrease market risk.