Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Davy Crockett who wrote (8111)	8/11/2007 8:08:04 PM
From: John Pitera	Respond to of 33421

Instability in the ABCP is the new concern of week....... Some corporates may risk wider spreads on ABCP hedging Fri Aug 10, 2007 5:01PM EDT By Karen Brettell NEW YORK, Aug 10 (Reuters) - Credit default swaps on some companies that sell asset backed commercial paper (ABCP) may weaken if resistance by investors to take on new paper sparks hedging on the companies. "Instability in the ABCP market is the new concern of the week," analysts at Barclays Capital said in a report. Asset-backed commercial paper conduits are vehicles that issue short-term securities to investors in order to finance mortgage assets for originators until these assets are ready to be securitized. Banks typically provide liquidity facilities against the ABCP issuance. "For specific credits, an interruption in commercial paper access would likely result in a technically driven widening of credit default swap spreads because the banks that have backstopped those commercial paper programs would probably want to hedge," Barclays said. The inability to roll a commercial paper program could also lead an issuer to fund themselves with new debt in the corporate bond or loan markets, which could also send their default swap spreads wider. However, "although they currently are facing high spreads, including a 20 basis point jump in yield on Thursday, broadly speaking, corporates have been able to roll their commercial paper during this recent period of credit dislocation," Barclays said. Units of American Home Mortgage Investment Corp. (AHMIQ.PK: Quote, Profile, Research), which filed for bankruptcy on Monday, Luminent Mortgage Capital Inc. (LUM.N: Quote, Profile, Research) and hedge fund Aladdin Capital Management all exercised options this week that allow them to delay repaying commercial paper. "The extensions are evidence of the liquidity issue here, investors have been backing away from the market and spreads on commercial paper are much higher than normal," said Everett Rutan, analyst at Moody's Investor Service in New York. "Investors are being extremely cautious." "It's been an interesting week, the ability of commercial paper to roll is a concern and we are certainly looking at programs and their liquidity situation and their contingency plan," Rutan said. In some cases, however, it is the lack of liquidity rather than a company's credit profile that is driving the need to delay payments. "In most cases these are good assets so it's more of a liquidity issue than a credit issue," Rutan said. Coca-Cola Enterprises Inc. (CCE.N: Quote, Profile, Research), Liz Claiborne Inc. (LIZ.N: Quote, Profile, Research) and Ryder System Inc. (R.N: Quote, Profile, Research) are among the sellers of commercial paper that may see their spreads come under pressure on illiquidity in the commercial paper market, according to the analysts at Barclays. Coca-Cola may come to market at the same time as its minority owner Coca-Cola Co. (KO.N: Quote, Profile, Research), leading to oversupply of the credit, Barclays said. Liz Claiborne may be unattractive due to its "P-3" rating, the lowest short term commercial paper rating, while Ryder, which is fairly reliant on the paper, is suffering from mixed investor sentiment on the company, the bank said. reuters.com ------------------