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New Conduits Gear Up for Bond-Buying Binge
Asset Backed Alert, Harrison Scott Publications Inc. (July 9, 2004)

Two companies are separately about to launch commercial-paper conduits that would have the capacity to purchase billions of dollars of securitized products.

The first vehicle to hit the market will be Thornburg Mortgage Capital Resources, a $5 billion conduit that will invest in instruments related to the residential-mortgage securities issued and purchased by its Santa Fe, N.M., parent, Thornburg Mortgage. The entity is due to start issuing paper over the next two weeks.

Meanwhile, International Asset Transactions of New York is lining up dealers for a multiseller conduit called SuperLumina Funding. That vehicle will have $12.5 billion of funding capacity and could start issuing by yearend.

Lehman Brothers is the lead dealer for the Thornburg's securities-arbitrage conduit. Merrill Lynch and Goldman Sachs are also on board. The vehicle will use the proceeds from its sales of extendible paper to act as a repurchase-agreement counterparty for its parent. The repurchase lines will be tied to Thornburg's holdings of agency mortgage securities and private-label MBS. Thornburg Mortgage Capital will be similar to Georgetown Funding, a $5 billion conduit run by Friedman Billings Ramsey of Arlington, Va.

Thornburg, which has $22.4 billion of assets, currently relies on repurchase agreements from third-party lenders to fund the bulk of its MBS investments. The planned conduit will eventually replace 30% of those lines.

As for International Asset, its conduit will initially buy up to $1.3 billion of top-rated securities. Most of those bonds will be from new collateralized debt obligations, said Gus Udo, the firm's chief executive. By next year, SuperLumina will also start purchasing trade receivables and other assets.

International Asset, which has been working on the conduit for two years, is now talking to other companies that might use the vehicle if, for some reason, they couldn't purchase a client's assets through their usual vehicles.

Once SuperLumina starts issuing, International Asset will launch a separate fund, totaling up to $250 million, that will invest in subordinate pieces of trade-receivable deals structured for the conduit. A number of institutional investors have expressed interest in the entity, which would function like a hedge fund, Udo said.

Bob Seery, International Asset's chief financial officer, will run the conduit. As the vehicle grows, the firm plans to add up to eight professionals to his 10-member team in New York.



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