Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co. and several other financial institutions have agreed to create a single master liquidity enhancement conduit (M-LEC) intended to enhance liquidity in the market for asset-backed commercial paper and medium-term notes issued by structured investment vehicles (SIVs).
Once established, M-LEC will agree, for a set period of time, to purchase qualifying highly rated assets from certain existing SIVs that choose to take advantage of this new source of liquidity, the companies explain. Access to such liquidity is intended to allow participating sellers to meet pending redemptions and facilitate asset-backed commercial paper rollovers.
M-LEC will issue new short-term credit instruments to finance its purchase of eligible assets from participating sellers. The instruments issued by M-LEC are designed to benefit from various features, including a cushion of support from junior layers of capital and liquidity backstops. According to the companies, the size of the vehicle, the scope of the liquidity backstops, and the underlying cushion of capital are intended to enhance the liquidity and marketability of the short-term obligations of M-LEC.