Moody’s Investors Service today announced that it will, for the first time, provide ratings on Canadian asset-backed commercial paper program issuers.

The rating agency says that this step will provide investors in Canada’s $80 billion ABCP market with Moody’s opinions on the ultimate ability of issuing entities to honor their senior financial obligations and contracts.

“The decision to rate Canadian ABCP conduits will provide investors with a wealth of independent, objective and globally consistent research on the true credit quality of this market, which has been lacking until now,” said Andrew Kriegler, managing director of Moody’s Canada.

A Structured Finance Issuer Rating is Moody’s opinion of an ABCP issuer’s general financial capacity to ultimately honor its financial obligations and contracts based on an expected loss assessment of the credit quality of its assets. These ratings incorporate Moody’s view of the quality of the ABCP program issuer’s management and its investment process and strategy.

“A Structured Finance Issuer Rating integrates Moody’s opinion of the support features that the conduit needs to function, including the quality of the documentation, the technological systems, the administration, and the ability of the support providers such as the trustees, administrative agents, and others, with our opinion of the credit quality of its assets,” Kriegler said.

Moody’s says that the recent growth in the Canadian ABCP market — which totaled about $60 billion at the beginning of 2004 — can be attributed largely to increased conduit exposure to derivative transactions, particularly synthetic collateralized debt obligations. While Canadian ABCP programs historically invested in traditional consumer and corporate financial assets, today it is not uncommon for them to also invest in the highest-rated tranches of synthetic CDOs backed by many different types of underlying exposures — including portfolios of corporate borrowers, it adds.

“The Canadian ABCP market had stalled at around $60 billion in outstandings in the early years of the decade because of a shortage of investments — even as demand from investors for high quality, short-term paper continued to rise. The ability of the derivatives markets to provide investments to meet that demand has propelled the ABCP market’s growth over the past two years,” said Kriegler.