DBRS Comments on MAVI and MAVII Collateral Calls

DBRS has today commented on the recent series of trigger event notices delivered by Canadian Imperial Bank of Commerce (CIBC) to Master Asset Vehicle I (MAVI) and Master Asset Vehicle II (MAVII; collectively, the MAVs) requesting additional collateral.

As described in the DBRS Canadian Structured Finance Newsletter dated February 19, 2009, CIBC is the swap counterparty for four leveraged credit default swaps (CDS) collateralized by the MAVs that are not subject to the 18-month moratorium period applicable to all other CDS transactions entered into by the MAVs. The collateralization triggers on these transactions were breached on March 3, 2009, prompting CIBC to deliver trigger event notices to the MAVs requesting additional collateral. On March 6, 2009, and March 9, 2009, CIBC delivered subsequent trigger event notices to the MAVs with respect to subsequent trigger breaches. The additional collateral demanded under the March 9, 2009, trigger event notice was withdrawn on March 11, 2009. The total amount of additional collateral demanded by CIBC now stands at $95.4 million for MAVI and $19.3 million for MAVII. CIBC has stated that the deadline for providing additional collateral is 5:00 p.m. on March 13, 2009.

At the time of issuance of this press release, DBRS had not been informed of the posting of additional collateral. As noted in the March 3, 2009, Canadian Structured Finance Newsletter, the failure of the MAVs to post additional collateral will result in a partial or total unwind of the CIBC transactions with the MAVs. For MAVII, the resulting reduction in collateral supporting the notes is capped at $107,742,597 (or approximately 1.1% of the assets of MAVII).

The MAVs hold one other transaction that retained the original collateralization triggers and is not subject to the 18-month moratorium period. The Class 15 Ineligible Asset Tracking Note is unrated by DBRS and is secured by a leveraged CDS with Royal Bank of Scotland (RBS) as swap counterparty. Unlike the CIBC transactions, these trades were siloed from the MAVs and as such, the performance of the RBS transactions will not affect the Notes. For greater certainty, the breach of the collateralization triggers for transactions not subject to the 18-month moratorium does not count as a breach of any of the five spread-loss matrices that all of the other leveraged CDS transactions reference. As such, a partial or total unwind of these transactions would not be the first step toward the MAVI and MAVII transactions converting from a spread-loss regime for collateral calls to a mark-to-market regime.

As indicated in the DBRS press release dated March 6, 2009, confirming the ratings of the MAVI and MAVII Class A-1 and Class A-2 Notes (the Notes), the potential for transactions not subject to the 18-month moratorium to unwind was considered by DBRS when assigning the “A” rating to the Notes, and no rating action is warranted at this time.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodology is Rating Canadian Structured Credit Transactions, which can be found on our website under Methodologies.

This is a Structured Finance rating.