What are ABCP conduits, securities arbitrage conduits and repo conduits?
What are ABCP conduits, securities arbitrage conduits
and repo conduits?
ABCP conduits are special purpose vehicles that issue commercial paper (CP) and uses the proceeds of the CP to acquire various types of assets such as receivables, loans and securities. Major types of ABCP conduits include single-seller, multi-seller, securities arbitrage (credit arbitrage), repos and hybrids.
Securities arbitrage conduits (credit arbitrage conduits)
are similar to traditional receivable conduits in that the
vehicle
is funded
with ABCP.
However,
these conduits typically hold highly-rated bonds (ABS, MBS,
etc) in its asset portfolio. The high ratings for its issuances
are based meeting minimum portfolio performance criteria as
stated in the operating manual by the rating agencies. A securities
arbitrage conduit shares many
similarities with a structured investment vehicle (SIV) – however
they require larger liquidity facilities.
Repo conduits are becoming increasingly popular because they do not require liquidity lines (expensive), as they are not deemed necessary by the rating agencies given the matched funding nature of the conduits. In such operations, the assets are funded through matched repo agreements instead of commercial paper.
Some of the largest ABCP programs include: Grampian Funding, Scaldis Capital, Amstel Funding Corp, Sheffield Receivables Corp, Jupiter Securitization Corp, Atlantis One Funding Corp, Falcon Asset Securitization Corp, FCAR Owner Trust, Silver Tower Funding, Tulip Funding Corp, CAFCO, CRC Funding, Ranger Funding Corp, East Fleet Finance, Chesham Finance and Ebury Finance.