Budgetary constraints have prompted the Spanish Treasury to further reduce guarantees provided to Spanish-styled SME CLOs called FTPYMES. In 2001, the Spanish government cut 15% from the guarantee coverage it offers on triple-B tranches, and this year it plans to move ahead with a 50% cut on the coverage provided for single-A tranches. Although it's the second cut in two years, market analysts say it's unlikely to stymie the growing popularity of the asset class.

The guarantee is largely regarded as reinforcement aimed to attract typical buyers of government debt. For true ABS investors, the absence of a guarantee provides an opportunity for cheaper participation in larger tranches of unguaranteed notes. According to Merrill Lynch, there have been 12 other transactions completed since the market's inception in 2000, and performance to date is excellent.

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