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Biotech / Medical : PFE (Pfizer) How high will it go? -- Ignore unavailable to you. Want to Upgrade?

To: zurdo who wrote (4566)	7/23/1998 9:57:00 PM
From: flickerful	Respond to of 9523

<<Asset-backed conduit market adapts to obligor rule>> Wednesday July 22, 4:09 pm Eastern Time By Tim Ryan NEW YORK, July 21 (Reuters) - Many players in asset-backed commercial paper have a simple strategy for dealing with a new rule affecting them: avoid having to comply with it. At issue are amendments adopted by the Securities and Exchange Commission to Rule 2a-7 of the Investment Company Act of 1940. Targeted to money market funds, they have raised complications when applied to the asset-backed commercial paper (ABCP) market ''It's quite a hassle, and we'd have to devote a lot of time to it,'' said Jim Irbe of Banc One Investment Advisors at a recent ABCP conference here. Commercial paper is short-term debt issued by banks, corporations and other borrowers to investors needing to put temporary cash to work. Asset-backeds involve some kind of collateral behind the paper, such as credit card debt or other types of receivables. Under the amendments to Rule 2a-7, if a single obligor has issued more than 10 percent of the collateral in a pool of assets, that obligor has to be considered a separate issuer and has to be accounted for separately. The new rules took effect this year and required compliance by July 1. This presents unique problems for ABCP, market participants said at the conference. Investors buy ABCP with fairly detailed information about the type of collateral in the mix, including rating agency evaluations, but without knowing in most cases who is the actual issuer of the collateral. With the amendments to Rule 2a-7, investors managing money market funds must rely on the conduit sponsor to reveal whether the conduit has any 10-percent obligors. Thomas Morgan, vice president and credit analyst at Mentor Investment Group, told Reuters that the new rules basically increase the amount of record-keeping that must be done. And in addition to separate monitoring and reporting on that obligor's commercial paper, Mentor would have to add that amount of indirect exposure to any other direct exposure it might have to that obligor from corporate bonds or other sources of investment. An easier tack is to avoid triggering Rule 2a-7 altogether, said Morgan and other participants during a panel discussion at the conference, by avoiding ABCP programs where a single obligor comprises more than 10 percent of the pool. Victoria Kess, vice president at Citibank Global Asset Management, said there were no 10-percent obligors in any of Citibank's portfolios and they would only be considered, she said, ''if we can get a couple of basis points extra.'' Avoiding the 10-percent obligor has become the plan of choice for many ABCP sponsors as well as investors. ''We will not have any 10-percent obligors in our vehicles,'' said Whitfield McDowell of Nationsbanc Montgomery Securities LLC. At present, however, Nationsbanc's Kitty Hawk ABCP program does have more than 10 percent made up of pharmaceutical receivables from Pfizer Inc. (PFE - news), but that percentage will be brought down through purchases of other receivables and diversification, McDowell said during a panel discussion. Irbe said the 10-percent presence of Pfizer was a concern when looking at buying into Kitty Hawk -- which he ultimately passed on -- even though, he said, there were no qualms about the triple-A rated receivables themselves. On the positive side of this rule, Morgan told Reuters, the requirement will probably lead to more diversified collateral in conduit pools as ABCP program sponsors try to keep their numerous obligors below 10 percent. ''The easiest way to do that is to grow the program,'' he said. ''That will make it much more popular in the marketplace.'' ------------------------------------------------------------------------ More Quotes and News:Pfizer Inc (NYSE:PFE - news)Related News Categories: funds, options, US Market News ------------------------------------------------------------------------ Help ------------------------------------------------------------------------ Copyright c 1998 Reuters Limited. All rights reserved. Republication or redistribution of Reuters content is expressly prohibited without the prior written consent of Reuters. Reuters shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon See our Important Disclaimers and Legal Information. Questions or Comments?