Running a commercial paper conduit is nothing new for the U.S. Central Federal Credit Union. This perhaps explains why the company debuted on the asset-backed commercial paper market with a flexible credit arbitrage vehicle that, unlike many similar vehicles, can issue extendible notes.

Sandlot Funding LLC, the credit union's first ABCP conduit, will be able to invest in high-quality ABS and MBS. The credit union will act as sponsor and administrator for the transaction. It will be able to issue up to $10 billion of secured liquidity notes with maturity dates of 270 days from their initial date of issuance, and final maturity dates of 365 days, if the administrator chooses to extend the notes.

Issuing extendible notes is an unusual feature among credit arbitrage programs, and in Sandlot Funding's case, the characteristic also acts as a form of liquidity support. Further, the program can access liquidity through a market value swap, provided by U.S. Central. Further shoring up the program, Sandlot Funding has a match-funded repurchase subfacility, wherein U.S. Central acts as the repurchase counterparty.

The conduit can only buy assets that are rated at least A3', plus meet other prerequisites under its investment policy, which relate to credit, asset type and geographical concentration, according to Moody's Investors Service, which gave Sandlot Funding a P-1' rating. Further, Sandlot must stop issuing asset-backed commercial paper if credit enhancement falls below required levels and the program has an event-of-default trigger if the portfolio falls out of compliance with its investment requirements and stays in that condition for more than 10 days.

Founded in 1974, U.S. Central is owned and directed by member credit unions across the country. At the end of the fourth quarter of 2006, it reported $43.3 billion in assets. Its wholly owned subsidiary, Credit Union Lending Member Connection, or Charlie Mac, was created in 1998 and purchases jumbo mortgage loans and auto loans originated by its member credit unions, according to U.S. Central's Web site. It is unclear, however, whether Charlie Mac will be the entity that will sell assets to Sandlot Funding.

(c) 2007 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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