Stable outlook for US ABCP ratings

The ratings outlook for ABCP in the US in 2010 remains largely stable, according to a Moody's report for the sector. As the economy recovers, underlying asset performance has become less of a concern and bank sponsors have been diligent in maintaining the credit quality of their conduits.

However, there is downside risk in that any removal of the systemic support currently provided to the banking system could impact bank sector ratings. Any downgrade of the Prime-1 rating of a conduit sponsor or liquidity provider would have a direct impact on the Prime-1 rating of the related conduit's ABCP.

The volume of ABCP issued in 2010 will largely depend on the economic recovery. Moody's svp Everett Rutan notes: "Banks seem willing to add well-structured transactions to ABCP conduits and there are sellers who desire such facilities."

Utilisation of those facilities is 10 to 15 percentage points lower than several years ago. If business activity increases, utilisation and the amount of ABCP outstanding should increase, Moody's says.

While 2009 saw US ABCP outstandings decline for the third straight year, otherwise it was a year that the market stabilised and strengthened. Support programmes established by the US government in the fourth quarter of 2008 provided liquidity to the market and these gradually wound down in the second half of 2009.

Rutan explains: "Declining ABCP volume helped to tighten spreads and extend maturities as money funds struggled to find high quality, high yielding investments."

The last government programmes ended on 1 February 2010 and the market has remained steady. However, regulation remains the final uncertainty overhanging the US ABCP market.

In addition to concerns about systemic support, the final implementation of Basel 2 may also impact the economic viability of bank-sponsored ABCP conduits. New money market fund regulations require increased attention to liquidity and this may affect their willingness to hold certain investments. Industry participants are currently working to determine how these will be implemented, Moody's notes.

JA