Fitch Ratings announced it will begin rating Canadian asset-backed commercial paper (ABCP) conduits, as many of these vehicles are moving to global liquidity arrangements.

The rating agency indicates that many Canadian ABCP conduits have significantly strengthened the level of protection available to investors, by improving the liquidity support facilities available to cover funding disruptions. As a result of these changes, certain Canadian ABCP programs are now eligible for ratings consideration by Fitch. In the coming weeks, Fitch expects to assign ratings to a number of Canadian ABCP programs.

Under previous structures, most liquidity draws were conditioned upon an ABCP market shutdown and generally referred to as a ‘general market disruption’ liquidity. The newly enhanced liquidity facilities incorporate mechanisms that allow issuers much greater accessibility to funds when needed to pay maturing commercial paper. The new facilities, referred to as ‘global style liquidity’, have always been a key element of Fitch’s global ABCP rating criteria.

Fitch notes that the structural shift was prompted by the difficult market conditions faced by Canadian ABCP issuers over fears of contagion risk arising from potential exposure to the U.S. mortgage market and other factors.

“Particularly hard hit were many Canadian non-bank sponsored third party ABCP issuers that were unable to roll new CP to pay maturing liabilities as investor demand for the paper dissipated. Compounding the effects of constricted investor demand was the inability of many of these issuers to access funds under their respective GMD liquidity support facilities,” it says. “This confluence of events led to approximately $33 billion of ABCP, more than a quarter of the $120 billion market, going unpaid and effectively defaulting.”