09/14/2012

Conduit to Fund Guggenheim Repo Deals

The former Liberty Hampshire has set up a commercial-paper conduit with some unusual twists.

The operation, which has gone by Guggenheim Treasury Services since early 2011, launched the vehicle Sept. 10 under the name Ridgefield Funding. It has since placed more than $600 million of short-term paper in the hands of investors, with the goal of increasing its outstandings to $3 billion in the months ahead.

Bank of America and RBC Capital are serving as primary dealers for the securities, which carry P-1/A-1+ ratings from Moody’s and S&P.

Rather than financing clients’ receivables in the conventional sense, Ridgefield is part of a breed of conduits whose proceeds fund repurchase agreements written against the holdings of a counterparty — in this case, corporate bonds owned by BNP Paribas.

In a repurchase agreement, a counterparty sells securities to an investor with a promise to buy them back at a pre-set price. Ridgefield adds a step to that process, using payments on the repo contracts to compensate its noteholders.

But that’s not the vehicle’s most novel feature. Ridgefield is set up to offer what Guggenheim called “serialized commercial paper,” starting with a series called Ridgefield Funding, Series A1, that is backed only by BNP’s repo agreements. The next step would be to add counterparties in the months ahead, with each underpinning a discrete batch of notes.

Because the counterparties won’t be commingled, investors can choose which exposures they want to take on. Another benefit that Guggenheim is pitching to market players: The repo collateral would be bankruptcy remote, and would become accessible to noteholders immediately in the event of a counterparty insolvency. Like many other repo conduits, Ridgefield doesn’t make use of liquidity facilities.

Ridgefield is run by a Guggenheim Treasury team in New York that operates four other conduits with some $20 billion of commercial paper outstanding. Guggenheim Treasury is a unit of the $160 billion Guggenheim Partners of Chicago.

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