ABCP Comment

In recent days, there have been many headlines regarding the turmoil in global credit markets and, more specifically, the difficulties that Canadian asset backed commercial paper (ABCP) issuers having re-financing maturing issues. In light of all the press, we thought that it would be worthwhile to provide you with an update on the short term securities that we hold in the NexGen portfolios.

In the vast majority of Canadian ABCP, the provisions for providing liquidity to mature issues when the markets are unwilling to take new paper take one of two forms. Either the paper is extendible at the issuer’s option, or there is a line of credit that can be used to pay off the maturing issues. Importantly, the ability to access the line of credit is dependent both on the underlying assets continuing to perform satisfactorily and on there being a general “market disruption” event. The meaning of this latter term is subject to interpretation, however, and as a result we have consistently avoided purchasing ABCP with this sort of liquidity backstop. With the developments in the last few days in which a number of banks have refused to fund liquidity lines of credit based differing views about there being a market disruption, it would appear that our conservatism was justified.

We are pleased to confirm that there is no asset backed commercial paper in any of the NexGen portfolios we manage.

Jeff Herold

Lead Fixed Income Manager

    NexGen Canadian Cash Funds,

    NexGen Canadian Bond Funds