International Asset Transactions (IAT), a New York-based independent firm specializing in the securitization and trading of illiquid securities, is readying its first conduit, a USD12.5 billion structure that will invest in asset-backed securities and medium-term notes and will use over-the-counter credit, fixed income and foreign exchange derivatives. Gus Udo, president and ceo in New York, said the structure, dubbed SuperLumina, is being forged to benefit from recent regulatory and accounting changes, including Financial Interpretations accounting rule 46, known as Fin 46. A Fitch Ratings report predicts that a consequence of Fin 46, as well as the impending Basel 2 accord, will be a reduction in bank-sponsored conduits referencing asset-backed commercial paper and this presents opportunities for established, independent firms to step into the void, he noted. It is called SuperLumina because it aims to shed light on assets that are normally ignored.
IAT recently hired Lawrence Kwoh, v.p. in structured finance and portfolio manager at Trainer Wortham in New York, as a managing director charged with heading structured credit in the conduit. The firm plans to appoint three additional credit professionals, reporting into Kwoh, as well as one origination specialist who will report to Udo. Kwoh referred calls to Udo.
Instead of financing assets on their balance sheet, which under Basel 2 would attract capital charges if the assets are not AAA-rated, or having their own conduits, which under Fin 46 may be necessary to consolidate onto the sponsor's balance sheet, firms can transfer clients' money into third party independent conduits such as SuperLumina, said Udo, noting that at present only a handful of independent firms are operating in this space.
SuperLumina will issue dollar- and euro-denominated asset-backed commercial paper and medium-term notes and will use proceeds of the structure to purchase trade receivables and other obligations, Udo explained. IAT has already signed one bank to buy into the structure and is in talks with several other clients, he said, declining to name the firms.
Counterparties for the conduit's derivatives trades will need a AAA rating.
