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Capital Asset Seeking To Continue Success With Lien Purchasing, Service - by Amy B. Resnick
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Capital Asset Seeking To Continue Success With Lien Purchasing, Service WASHINGTON -- Capital Asset Research Corp., a major player in the municipal tax-lien purchase and servicing business, last month sold $285.4 million in securities backed by tax liens from two states, the largest multi-state securitization to date. Looking ahead, the deal could clear the way for more of these types of transactions, market observers said. "As part of our strategy of utilizing diverse sources of financing, we anticipate ongoing use of the securitization market," said Richard A. Heitmeyer, president and chief executive of Capital Asset, in a company release following the deal. Kamran Kazim, an associate analyst in the structured finance group at Moody's Investors Service, said among other reasons, because of Capital Asset's track record of collection on liens from Florida and New Jersey, where the pooled liens originated, the rating agency was comfortable with their projections on the liens' performance. In addition, because Capital Asset has a large pool of liens remaining, and is still buying new liens, the firm "could potentially come to market annually with a deal," Kazim said. Moody's rated this deal Aaa, while Duff & Phelps Credit Rating Co. and Standard & Poor's rated it AAA, based on insurance provided by MBIA Insurance Corp. MBIA, whose subsidiary MBIA MuniServices is an equity partner in Capital Asset, has provided insurance on this and the only other insured tax lien deal that have been sold. The taxable securities were privately placed by Lehman Brothers at an interest rate of 6.40% with an expected maturity of March 15, 2002, according to the private placement memorandum. Capital Asset will continue to service the New Jersey and Florida liens, which make up the pool. Diane Westerback, a Moody's vice president and senior analyst, said pooling of liens -- either by a private third-party purchaser such as Capital Asset or by a public entity that might pool liens within a state - "are an ideal way to create significant volume." Industry participants agree that a pool needs to be at least $25 million to make securitization financially viable. For smaller communities that might not have that amount of liens by themselves, pooling "makes a lot of sense," Westerback said. She predicted that the somewhat gradual spread of tax-lien securitization to date in the market might accelerate once conduits, particularly those that pool the liens within a particular state, are in place. Legislation to create such a conduit in New York has been introduced in the state legislature. Another underwriter, who asked not to be identified, said the Capital Asset deal should signal municipalities that securitizations, rather than bulk sales, are a more lucrative way to clear the non-performing assets from their books. "If all the people buying liens at auction are doing securitizations there is less of an argument for doing bulk sale," the underwriter said. "In this case, (Capital Asset) gets all the big (money) out of the deal." In addition to Florida-based Capital Asset, Breen Capital Group, a New Jersey-based lien purchaser and servicer, has also securitized a multi-state lien pool. The Capital Asset deal is unique from earlier deals by servicers and by cities like New York, Philadelphia, and the District of Columbia, because it features a credit agreement with Credit Local de France that enables the trust to purchase the subsequent liens issued against properties in the pool, said Moody's and the placement agent. "Because the subsequent liens accrue interest at higher rates that the tax liens and must share in the proceeds from any recoveries, the priority of the claims for the liens (in the pool) is preserved, and the additional spread supplements the credit support," Kazim wrote. Emile Van Den Bol, vice president in the asset-backed securities group at Lehman Brothers, said the feature was important because it "prevents the fast creep up of the lien-to-value ratio." In addition, the pool benefits because the trust only pays interest on the loan if the liens purchased with money from the loan are redeemed, he said. Capital also benefits, because the subsequent liens pay at a higher percent than the initial liens in the pool and any money left when the securities are paid reverts to Capital, Van Den Bol said. "The deal is very much back loaded," he said. ~~~~~~~~By Amy B. Resnick |
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