The emerging markets of Latin America and Eastern Europe appear to be the favorite modes of expansion for most banks' asset-backed commercial paper programs lately. Royal Bank of Canada, however, is still finding ample room for growth in traditional European strongholds, and the bank recently amended three of its ABCP programs to accommodate growth in those markets.
The bank amended Old Line Funding, Thunder Bay Funding and White Point Funding so that all three conduits can fund assets through a bankruptcy-remote, feeder SPV. While acknowledging that the move signifies increased business for the bank, several market observers say that using a feeder SPV is a fairly routine tactic in the ABCP sector.
Routine or not, the change allows Old Line and White Point to purchase non-dollar-denominated assets with dollar-denominated ABCP and helps Thunder Bay finance transactions coming through the bank's growing European practice. Of the bank's three vehicles, only Thunder Bay previously had the ability to fund assets through the feeder SPV, according to Moody's Investors Service, which rates the conduit P-1'. Furthermore, according to the conduits' covenants, no single asset can account for more than 10% of their outstanding amounts, according to a source familiar with the bank.
RBC's programs are growing on the strength of staple asset classes, including revenue from credit cards, trade receivables, mortgages and auto loans. While acknowledging that Polish companies are showing more interest in tapping ABCP as a source of funding, market sources say most of the business is coming from familiar markets - the U.K., Germany, the Netherlands and Spain.
The changes fall in line with valuable lessons that U.S. companies are learning about how to manage their businesses overseas, says one market source.
"In the U.S., domestic issuers who have portfolios [of assets] in Europe are looking to securitization," an industry participant said. "They are finding that they can combine assets from a lot of jurisdictions and do a euro-denominated transaction."
For Royal Bank of Canada's part, the changes allow Old Line and Thunder Bay to co-fund an existing GBP409.5 million ($815 million) credit-card transaction, as well as two mortgage warehouse facilities backed by Dutch and German receivables. The conduits will share a 1.2 billion ($1.7 billion) maximum commitment on the warehouse facilities, according to the rating agency.
Old Line, Thunder Bay and White Point were launched in 1994, 1997 and 2005, respectively, according to the Moody's ABCP index. The conduits have combined commitments amounting to about $25 billion. Old Line, Thunder Bay and White Point all maintain a P-1' rating from Moody's. Standard & Poor's rates the Old Line A-1+' as well as Thunder Bay and White Point A-1'.
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