Asset-backed CP Faces Regulatory Challenges and Competition - Report

Standard & Poor’s has released a report on the European asset-backed commercial paper (ABCP) market, forecasting a challenging period of adaptation to regulatory changes and increasing competition. ‘Several new conduits have already been established in 2004, for example, Ormond Quay Funding and Curzon Funding, which are arbitrage conduits,’ said Andrea Quirke, at the ratings agency. She continued: ‘Over the next 12 months, the use of ABCP as a financing tool will not diminish, although the composition of ABCP programmes may change to meet new challenges.’ Three main challenges have been identified for the year ahead. First, in 2005, the German landesbanks will lose the benefit of two support mechanisms offered by the German state. Second, new regulations are triggering a search for alternative liquidity in existing and new conduits. Third, the Basel II Accord made recommendations for the use of liquidity. It means that liquidity facilities will be restricted, and any facilities must be the last option for credit enhancement, and not subordinated in the priority of payments.

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