After months of marketing, the $225 million pharmaceutical patent royalty securitization from Royalty Pharma Finance Trust, just the second ever such transaction, closed last week after having been placed into an undisclosed conduit. Structured and underwritten by Credit Suisse First Boston, structural changes and additional credit enhancement were added to the trade to mitigate the risks that led to the 2000 transaction, BioPharma Royalty Trust I, entering into early amortization late last year.

Rated triple-A by Moody's and Standard & Poor's, primarily due to the MBIA wrap. The diversity of the patent rights incorporated into this trust was also a major factor, according to CSFB director Rob Horowitz. "The previous deal's early amortization was taken into account," said Horowitz, who added that the revolving nature of this offering and thus the ability to replace potential underperforming assets quelled concerns. "BioPharma performed as expected given the events, triggers were tripped and it's paying out on schedule," he added.

In addition to being wrapped by MBIA, the revolving pool of 13 different patent royalty payments allows for any supply/demand imbalances associated with a single royalty's cash flows to be replaced during the three-year revolving period. BioPharma's groundbreaking $60 million single-patent deal, via WestLB, saw its cash flows steadily decline after patent holder Bristol-Myers Squibb unloaded its inventory - at a discount - of HIV drug DT4 (street name Zerig), in late 2001.

In that transaction, patent holder Yale University securitized the revenue stream associated with Zerit, licensed to Bristol Myers in the late 1980s. Bristol was paying the university a cash stream as a function of the overall revenue that the drug brings in annually.

The mezzanine notes first breached their cash flow covenant in 4Q01, followed by the seniors in 1Q02, at which point the mezzanine suffered a shortfall of about $600,000 in principal and interest made up by a surety provided by ZC Specialty Insurance Co., a subsidiary of Center Re. Covenants were breached again for both classes of notes in the second quarter, which technically triggered a rapid pay-down for the mezzanine tranche, although this is less meaningful with the surety in place.

Royalty Pharma is backed by royalty rights for drugs used to treat primarily serious or life-threatening afflictions. Included within this transaction are Genetech Inc.'s Rituxan, Amgen Inc.'s Neulasta, Celgene Corp.'s Thalomid and Centocor Inc.'s Repro. Amgen's Neulasta, for example, is used to treat Neutropenia, the sometimes-deadly chemotherapy side effect of severe declines in patient's white blood cell count.

Proceeds from the securitization will be used for multiple corporate purposes, primarily the acquisition of additional royalty rights, added CSFB's Horowitz.

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