The Canadian asset-backed commercial paper market is finding its legs again, thanks in part to a global ratings agency.
Standard & Poor’s, which did not previously cover Canadian ABCP, Tuesday assigned a top rating to a new paper program from Deutsche Bank, called Okanagan Funding Trust. Like other flavours of ABCP, Okanagan will sell short-term paper secured against a collection of auto loans, equipment leases and mortgages.
S&P had not been rating these ABCP programs out of what proved to be well-founded concerns about the liquidity backstops, or guarantees that investors would get paid out if the paper couldn’t be rolled over. Rival agency DBRS did rate this debt, and $32-billion of non-bank-issued ABCP ended up frozen in August when buyers walked away, and banks refused to backstop the paper. ABCP issued by the major Canadian banks, which dominate this market, continued to roll over this summer.
The Okanagan offering will feature liquidity guarantees that meet S&P’s standards. Deutsche Bank has not said how much money it plans to raise with the new ABCP program. Moodys also declined to rate Canadian ABCP in the past, and that agency has also indicated it would offer ratings if liquidity guarantees were improved and clients were willing to pay for service.
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