The monoline industry does not have much to celebrate these days. But a not-so-little European whole business deal wrapped by MBIA that closed last week could provide a small specter of hope for bond insurers.
"Bringing this deal to a successful conclusion was a little miracle,'" said Patrice Doat, a partner at the law firm Gide Loyrette Nouel, which last week closed the first monoline securitization since the credit crunch started last August. "This was a unique, twelve-month marathon deal combining a great number of parties and novel, complex contractual and tax structuring."
The bonds have been rated triple-A by Standard & Poor's and Moody's Investors Service. Calyon, Bank of Scotland and Credit Industriel et Commercial (CIC) acted as lead arrangers on the 800 million whole business securitization for the Fraikin Group, a European truck leasing and fleet management company.
The deal enabled the partial takeout of CVC Capital Partners' bridge acquisition financing from its February 2007 takeover of Fraikin and the establishment of a five-year, 250 million credit facility to enable Fraikin to continue to grow its fleet.
Before August 2007, monoline wraps were a near-universal feature of whole business securitizations, but as banks lost confidence in monoline insurers, there has been a collapse in the viability of a wrap. "MBIA went in as it has done in the past; their rights and commitments are almost the same, but in this delicate time for the ABS market this deal sends a clear message that if you have good-quality underlying assets - which was the case - and constructive financial, legal and tax teams, deals can still go ahead," said Dimitrios Logizidis, an associate at Gide Loyrette Nouel.
Logizidis said that this latest deal introduced a new contractual and tax structuring feature that had a positive impact on the "borrowing base" mechanism, with a correlative decrease in the level of credit enhancement required by the monoline insurer and the rating agencies.
The deal was also notable because it highlights an improvement of certain contractual and tax structuring features, Logizidis said. These made a positive impact on the "borrowing base" mechanism for the transaction as well as a correlative decrease in the level of credit enhancement required by the monoline insurer and the rating agencies. The "advance rate" was increased to roughly 88% because of a new contractual truck purchase scheme and certain tax deductions, he explained. "This particular structure gave credit to assets that had not been taken into account in other similar deals," Logizidis said.
He expects to see an uptick in privately placed whole business deals in the coming months. "We will see more of these whole business type deals that are placed privately and give the investors the option to syndicate commitments at different stages of the transaction, but not all will necessarily be wrapped deals." He added that he wouldn't be surprised if some deals go out with underlying rating, unwrapped.
While making the case for value may be hard given the times, Logizidis said that if the fit is right arrangers and monolines can still work together to provide some level of comfort for buyers.
"A monoline wrap's value today is different for this type of deal," he said. "Wrapping a deal may be considered less important because we are dealing with private rather than with public ABS transactions, but investors will still find it better to buy triple-A paper."
Gide Loyrette Nouel also acted for MBIA UK Insurance.
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