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CapMAC First to Wrap Emerging Market CBO; Investors Benefit From Enhanced Yields, Structural Protections.

NEW YORK--(BUSINESS WIRE)--November 25, 1996--Capital Markets Assurance Corporation ("CapMAC") announced today that it has provided the first credit enhancement "wrap" for an emerging market collateralized bond obligation (CBO), using a unique structure that provides enhanced yields and structural protections to investors.

This is the first time that a pool of emerging market bonds has been wrapped by a monoline insurer. The $193 million transaction was rated triple-A by Moody's Investors Service and Standard & Poor's Corporation. A CBO is an asset-backed security (ABS) backed by a portfolio of bonds. This emerging market CBO was comprised of a diversified pool of U.S. dollar-denominated, non-investment-grade sovereign bonds from emerging market countries. The securities were offered by Bear Sterns International under Regulation S, and the structure included a reinvestment period.

Maryam H. Muessel, Managing Director at CapMAC, who heads the firm's Financial Engineering business unit, said, "This transaction demonstrates CapMAC's continued commitment to using our expertise in credit risk analysis to provide value-added financial benefits to our clients. CBO technology including diversification, excess spread, and leverage was used to enhance yield to the junior class, while providing structural protections for the senior class. We look forward to doing more of these types of transactions in the months ahead."

"This was a complicated deal," said Ms. Muessel. "It included a swap converting a portion of the fixed-rate collateral to floating. The dynamic nature of the pool resulting from the reinvestment structure and the potential impact on cashflows from defaults and prepayments posed a structural challenge for the swap mechanics." CapMAC also provided credit enhancement for the swap, which was provided by Bear Stearns' triple-A rated subsidiary, Bear Stearns Financial Products Inc.

CapMAC is a monoline financial guarantee insurance company based in New York City, with representative offices in London and Paris. The company is a leading provider of credit enhancement to asset-backed securities and other structured obligations. CapMAC is rated triple-A by Standard & Poor's, Moody's, Duff & Phelps, and Nippon Investors Service. CapMAC is a wholly owned subsidiary of CapMAC Holdings Inc. (NYSE:KAP) which, through its subsidiaries, also provides advisory and structuring services in connection with asset-backed financings; and access to funding vehicles for its customers through third-party owned and managed securitization funding vehicles.


Mary Vermylen

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Publication:Business Wire
Date:Nov 25, 1996
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