Through innovative deal structuring, asset-backed transactions are increasingly being used as principal protection mechanisms, where the interest rate is correlated to something unrelated to the underlying assets.

Salomon Smith Barney recently closed its third such transaction, a $40 million deal called Tiers Principle-Protected Asset-Backed Certificates Trust Series Telecom 2000-7. The coupon, which pays at the end of the five-year term, is based on the Amex Telecom index.

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