Reuters IFR: Prudential subprime-linked bond: neither fish nor fowl

NEW YORK, March 30 (IFR) - Investors were scratching their heads this past Tuesday over how to classify a unique $1 billion bond issue from US insurance giant Prudential Financial that was somewhere between a so-called "covered bond" offering and residential mortgage-backed security (RMBS), but didn’t fit completely into either category.

While the categorization of Prudential Covered Trust 2012-1 and the issuer’s motivation behind it were up for speculation even after pricing, market participants did generally agree that the Single A rated issue (Standard & Poor's) might be the first bond of its kind, as it is linked to the corporate credit risk of an insurance company but involves legacy RMBS assets.

Investors' circumspect attitude toward the bond led to a soft initial pricing -- it printed 100bp wider than a typical Prudential coroporate bond -- but on Friday the issue tightened nearly 40bp in the secondary market.
"I guess accounts got a little more comfortable with it!" said one market source.

The unusual deal was tied to the cashflows from a portfolio of 470 subprime RMBS and Re-Remics that a subsidiary of Prudential wanted to get off its balance sheet for the 3.5-year tenure of the bond. Yet the principal and interest were fully guaranteed by the parent company, just like the monoline “wraps” of yesteryear. That’s why S&P simply slapped Pru's Single A rating on the mysterious offering.

But some investors didn’t know what to make of it. Marketed by name as a “covered trust” (a misnomer, sources say), appearing to the naked eye as a simple secured corporate bond, and backed by cashflows of distressed sub-prime RMBS, the issue was an enigma.

“This bond is in no-man’s land,” said Mike Kagawa, a senior ABS portfolio manager at Payden & Rygel. “As an ABS investor, I didn’t even look at it. And given that it priced 100bp wide of Prudential’s corporate bonds with a structure attached to subprime, I’d say that most corporate investors were wary of it as well.”

The offering contains features of both covered bonds and RMBS, but is not truly either. The assets of a covered bond, a structure that is popular in Europe, remain on the balance sheet of the issuer throughout the tenure of the issue. MBS issues, for the most part, are off balance sheet, given the sale of the assets to a special purpose vehicle (SPV), or trust.

As with a covered bond, the notes of this week's offering were guaranteed by the parent company and offer semi-annual payments. But unlike most covereds, it pays out sequentially as well as with a fixed bullet of principal, and the payments are contingent on the underlying cashflows from the RMBS.

Underwriters Deutsche Bank (structuring lead), Barclays, and Wells Fargo were particularly tight-lipped about the issue. All the dealers, as well as Prudential, declined to comment.

Tax benefit?

The deal was a Rule 144a issue with no registration rights, and was handled by the leads’ high-grade bond desks, which surprised some in the market who had thought it was more of a structured issue.

Originally expected to price 75bp behind Prudential’s corporate bonds, the issue was talked at Treasuries plus 225bp. But it ultimately priced at Treasuries plus 250bp, a full 100bp wider than a standard three-year senior unsecured corporate bond issue from Prudential (typically Treasuries plus 145bp–150bp).

Surprisingly, the bond tightened to Treasuries plus 210bp–215bp in secondary market trading on Friday.

Still, the company’s initial lacklustre execution left market participants puzzled as to why Prudential would pay such a hefty premium to issue a bond like this as opposed to a straight bond offering or a direct trade of the underlying assets into the secondary market.

“It’s purely for tax reasons. It’s not capital arbitrage and it’s not asset liability management, according to the dealers,” explained one investor.

By selling the RMBS assets at market price and “locking in the loss”, the insurance company gains a significant tax benefit, another source suggested.

The source suggested that the tax relief is linked to Prudential's 2010 sale of its minority stake in Wachovia Securities Financial Holdings to Wells Fargo for $4.5 billion in cash.

But some market participants offered other explanations for the wide pricing: the deal was 144a versus Prudential’s public debt; it was amortizing, which high-grade investors charge for; and it was issued out of a trust.

It was also only rated by S&P, and several sources said that the issuer went with the sole rating because other agencies would have taken much longer to rate the trade.

Still others thought the most important factor in pricing was the offering’s illiquid nature. “I think accounts wanted a very steep concession for illiquidity,” an investor said.

Rating risks

S&P analysts said that this was the first deal of its kind, and that there were likely to be similar trades over the next few years. It was rated by the agency’s insurance team, which said it was only concerned about the corporate rating of Prudential, which is providing the guarantee.

Despite the fact that the bond was marketed with the name "covered trust", insurance-company ratings analyst do not have a background in covered bonds, according to S&P analysts.

The team was not worried about – nor does it know – the market value of the RMBS assets used as collateral. The notional balance of the RMBS is roughly three times the size of the note issuance, but it’s not clear what the current market value of the distressed RMBS is. However, the analysts said it was not germane to the ratings analysis.

Investors get scheduled principal and interest every six months. At the end of 3.5 years, they receive a final payment to redeem the notes in full. If there is a shortfall when the assets are liquidated, Prudential guarantees payments to investors.

But what happens if Prudential goes under? Analysts say that investors have a security interest in the assets of the trust, so they can make a claim to the assets. But since Prudential is an insurance company in New Jersey, it is governed by the state insurance regulator, and regulators have leeway to halt asset flows to investors if Prudential is dissolved. This is one, albeit remote, risk to investors that is unaccounted for in the rating, an S&P analyst said.

Adam Tempkin and Andrea Johnson

Reuters IFR: Investors unfazed by S&P CDO threat, but European banks may feel differently

NEW YORK, March 23 (IFR) -
  
      Standard & Poor's on Monday placed almost the entire universe of its rated US structured-finance collateralized debt obligations on CreditWatch Negative -- $63 billion worth -- as a result of a significant criteria tweak that it had begun to hint at several months ago. The move is likely to mean steep downgrades to an already distressed sector.

     Yet the response from many in the market was: "Who cares?"

     Even as risk appetite grows and trading picks up in the secondary market for products such as CDOs of asset-backed securities (ABS CDOs) and commercial real estate (CRE) CDOs --  and their values appreciate significantly -- investors are paying less attention than ever to the securities’ credit ratings, which are becoming increasingly uncorrelated to valuations, analysts say.

     "From a pure trading vantage point, ratings are not important any more," said David Yan, global head of CDO strategy at Credit Suisse. "People nowadays care more about how much subordination is in an underlying bond, or what the recovery and loss levels are on the bonds underpinning the CDOs. People are ignoring the ratings." 

     Subordination refers to the credit cushion protecting investors in the senior portions of the CDO from losses. The losses are first absorbed by the lower-ranked, or subordinate, pieces of the security. 

     "The ratings are irrelevant," added Darrell Wheeler, head of CMBS strategy at Amherst Securities and an expert on CRE CDOs. "Most of these CDOs don't trade that often and are already written down."

     S&P placed 517 bonds from 224 structured-finance CDOs on negative watch, in addition to many so called Re-Remics backed by commercial real estate. Re-Remics -- or re-securitizations of real estate mortgage investment conduits -- are structures used by dealers since the crisis to create new, investment grade securities out of severely downgraded mortgage bonds. 

     The disconnect between rating level and market value for these instruments is growing. For example, one slice of a CRE CDO called Hartford Mezzanine Investors I 2007-1 (HMEZZ 2007-1), rated only BBB/BBB+/Aa1 by Fitch/S&P/Moody's, was seen trading in the mid-90-cents on the dollar range last week, according to Richard Hill, a CMBS strategist at RBS.

      "There are numerous examples of senior, first-pay CRE CDOs trading in the mid-to-high 80s and 90s, with investors assuming full return on principal. And these are certainly not Triple A rated CDOs. Ratings have become a secondary consideration in the analysis," Hill said.

     As risky assets continue to perform well in the current environment, ratings have less meaning. Even other so-called "spread" products outside of S&P's recent ratings warning -- such as collateralized loan obligations (CLOs) -- have been valued higher in the secondary market than what their current credit ratings would suggest.

     Credit Suisse's Yan gave an example of two slices from two different CLOs -- one rated Double B and one rated Triple C -- that have recently been trading at the same price. Despite the disparate ratings, the bonds' underlying subordination levels are the same. "Ratings don't necessarily reflect all the factors that investors need to look at," Yan said.

Different for banks

     While investors interested in trading these securities are clearly no longer making decisions based on ratings, banks holding them on balance sheet may be in a different position. They face harsh regulatory capital charges if S&P pulls the trigger and downgrades the CDOs from investment-grade to junk.

     Luckily, roughly two thirds of the CDOs that S&P flagged are already non-investment-grade. But many European banks still hold high-grade CDOs, and such a move by the rating agency could force the banks to liquidate their distressed US assets ahead of the Basel III regulatory framework, sending a shock of supply into a fragile secondary market. The new capital adequacy rules will be gradually phased in starting in 2013.

     "A substantial downgrade could motivate some of the European banks to expedite the process of selling off these assets," said Vishwanath Tirupattur, the head of securitized-product strategy at Morgan Stanley. "In this regard, ratings are important because they could trigger a sale that would destabilize the market."

     The most pain will probably be felt by banks still holding CDOs at the Triple B, Double B, or Single A level.

     "Regulatory capital charges increase significantly when the bonds are downgraded from Triple B to Double B," said Ratul Roy, head of structured credit strategy at Citigroup. "At Single B, the banks have to set aside dollar-for-dollar regulatory capital."

     The degree of European bank liquidation of US SF assets has been difficult to gauge so far.

     While there is surely significant exposure, securitization specialists say that the banks are fairly astute product managers and may have already found an exit for the assets.

     "It's quite likely that they have managed by now to either trade up in quality, Re-Remic their positions, or exit entirely," said Chris Sullivan, the chief investment officer at the United Nations Federal Credit Union.
    
  "But the raters are no longer a driver of market activity, or even valuation," Sullivan said.

By Adam Tempkin   adam.tempkin@thomsonreuters.com 

Reuters IFR: As crisis fades, risk returns to asset-backed debt: Moody's

March 15 (IFR) -    As the credit crisis recedes and underwriting standards begin to loosen, bonds backed by consumer debt such as auto loans, credit card payments, and student loans are becoming increasingly risky, Moody's said on Thursday. 

  

Relaxed underwriting standards, more complex structures, and new untested market participants are just three of the trends suggesting that risk is on the rise for some sectors of the asset-backed securities market, Moody's said in a report.  

Even in the residential mortgage sector, which has not seen a significant return of private-label securitization, riskier non-prime, non-traditional mortgage originations are appearing. 

With credit standards slipping in asset classes such as subprime auto loans, and risky crisis-era structural features showing up in transactions, credit rating agencies need to make sure they are keeping up with the deteriorating credit standards and rating the these bonds appropriately -- which means withholding their coveted Triple A rating if it is not deserved, or making sure there are other features that mitigate the risks, said Moody's. 

   

Some of Moody's competitors have recently given Triple A ratings to ABS transactions that, in its view, did not deserve the top grades, particularly in the subprime auto space.  

 "We want to make sure that the credit protections that investors have keep pace with the evolution of the [securitization] market," said Claire Robinson, the head of new-issue structured finance ratings at Moody's and author of the report.  

   "There's a natural evolution in the credit cycle, and after the huge credit crunch came about as part of the crisis, we are now seeing the beginnings of credit loosening, which is normal. But as underwriting loosens, we need to make sure we're keeping an eye on investor protections in these deals.  

   "Non-traditional issuers and/or collateral are successfully coming to market again, indicating that investors have more of an appetite for risk." 

    

   AAA NOT DESERVED ON SOME DEALS 

   The riskiness of securitizations is still low and has not approached the level it reached in the early to mid-2000s, Robinson said, much less the level it reached at the height of what is now generally considered the credit bubble in 2006 and 2007.   

   ABS reached its issuance peak in 2006 at $754 billion.  

   However, if the normal pattern of the credit cycle plays out, the easing of credit that took place in 2011 will persist into 2012 and beyond, she said.  

   Originators have begun to ease underwriting standards, which is a natural progression from the extremely tight credit conditions that followed the onset of the financial crisis. However, in sectors such as subprime auto-loan securitizations, where underwriting is returning to its pre-recession norm, losses on loan pools backing auto ABS are bound to increase.  

   Issuers can compensate for this risk with the proper level of so-called credit enhancement, or the buffer protecting investors in the most senior bonds. Sometimes structural enhancements help mitigate the risk as well.   

   However, Moody's would not have assigned Triple A ratings to certain recent transactions that it did not rate, including a subprime auto deal issued by Exeter Finance Corp, which received high investment-grade ratings from Standard & Poor's and DBRS. 

   Even those two rating agencies disagreed on the top slice of the transaction:  S&P assigned it a AA rating while DBRS awarded it a AAA.  The US$200m deal priced on February 23.    

   "Exeter is small and unrated, with limited experience and little asset performance history," Moody's said. "The resulting potential for volatility in asset performance makes high invest-grade ratings inappropriate."  

   Subprime auto securitization has been increasing recently. This week alone, asset-backed backed offerings from Santander Consumer USA and Consumer Portfolio Services (CPS) were increased in size due to investor demand and oversubscribed, meaning that the demand for the bond exceeded the amount of issuance available several time over.   

   Similarly, in the credit card sector, Moody's said that the senior classes of bonds sponsored by issuers such as Cabela's, World Financial Network, CompuCredit and 1st Financial do not merit Aaa Moody's rating because of the weaker credit profile of the sponsors and the risk that they may not service the debt appropriately.   

   Moody's also noted that the volume of mailings in 2011 soliciting credit card customers was about double the level of 2010, with an increased emphasis on offerings to individuals with less than pristine credit histories.   

   Although credit standards are still tighter now than they were before the recession, the newest credit card vintages have more lower-quality accounts than do vintages originated in late 2009 and early 2010.  

   Moody's also raised a red flag about the entrance of private equity funds, hedge funds, and investment banks into the subprime auto and mortgage businesses.  

   "A sign that asset credit quality will continue to loosen in the subprime auto and mortgage sectors is the influx of non-traditional private capital into mostly subprime consumer lenders that will tap the securitization market," Robinson wrote.  

   For example, Moody's says that Pimco is considering buying a stake in subprime auto lender CPS, while Blackstone <BX.N> is interested in Exeter Finance and Perella Weinberg has set its sights on CarFinance Capital/Flagship Credit.  

   In the mortgage market, Fortress purchased subprime lender American General (now, Springleaf) from AIG in late 2010, and Shellpoint Partners acquired New Penn Financial. BlackRock recently announced that it had more than doubled its investment in PennyMac, a mortgage REIT.  

   "The entrance of players ... with higher risk profiles is a sign that competition for asset origination will increase," Robinson said.  

   Moody's also noted that certain risky structural features, such as "prefunding accounts", or cash reserve funds for the purchase of assets after a transaction's close, have begun returning to ABS deals for the first time since the onset of the crisis. The risk there is that the assets purchases after the transactions closes may be of lower quality than what investors were expecting.  

   Additionally, small originators and issuers with low credit quality have been getting back into the game, and their ability to honor representations and warranties may be limited.  

   Moody's warning comes during the busiest week of ABS issuance so far this year.  

   More than US$7.5bn in asset-backed volume across 11 deals is expected to price by Friday. 

   The surge of issuance brings year-to-date volume to more than US$45bn, putting it significantly ahead of 2011 issuance at the same point last year, which was roughly US$30bn. The encouraging level of issuance also puts ABS volume on a trajectory to eclipse last year's US$125bn full-year total.  

   At least four deals this week were upsized due to investor demand and oversubscribed.  

   Moreover, there were very large bid lists and increased trading in the secondary markets, as the buyside started rolling off seasoned paper in order to be able to allocate the money to the swath of deals in the primary. More than US$1.5bn traded in the non-mortgage ABS secondary so far this week, while a typical week usually sees US$500m trading.  

   Investors have money to put to work, dealers say, and the positive momentum in broader economic activity -- both consumer and commercial -- may have encouraged issuers to opportunistically tap the market.  

   On the other hand, the sheer range of asset classes represented this week -- auto lease, subprime auto, timeshare receivables, structured settlement, equipment, UK credit card, UK RMBS with US dollar tranches -- suggests that the trend may go beyond just opportunistic issuance, and that the ABS market may actually be poised for strong year-over-year growth for the first time since the crisis.   

Adam Tempkin

adam.tempkin@thomsonreuters.com 

     

REUTERS IFR: "Esoteric" bonds tempt yield-starved investors

NEW YORK, March 8 (IFR) -  With interest rates and benchmarks tighter than ever, asset-backed securities investors are flocking to bonds backed by unusual collateral in a hunt for higher yields.

At least five so-called "esoteric" ABS transactions have either been sold to investors over the last three weeks or are in the pipeline, backed by untraditional debt such as cell tower site lease payments, franchise fees, timeshare receivables, drug-royalty cashflows, and structured settlement payments.

Even typically staid investors such as insurance companies have been willing to diversify away from "traditional" commoditized consumer ABS -- such as bonds backed by auto loans, student debt, and credit card payments -- into "off-the-run", or less typical, collateral that may be harder to understand, but much higher-yielding.

While the trend has been developing for more than a year, in a more recent twist, these insurance companies have been willing to buy more subordinate debt of these esoteric ABS, moving out of their natural comfort zone of Triple A slices.

And even beyond esoteric collateral, investors have been willing to move down the capital structure of traditional consumer ABS offerings, buying either lower-rated or unrated residual pieces of more plain-vanilla transactions in order to juice returns.

"As traditional money-market managers have entered into consumer ABS as a cash alternative, traditional ABS investors continue to search for yield in off-the-run and esoteric ABS," said Tony Lee, a structured finance analyst in the US fixed income group of Los Angeles-based investor TCW. "Demand for prime and subprime auto subordinate, timeshare-backed, shipping container, and aircraft lease-backed ABS all increased during February with supply for these bonds still hard to find" in both the primary and secondary markets.

With swaps benchmarks at historical lows, yields on recent auto loan-backed transactions with maturities of three years or less have been 1% or less, and continually decreasing. Investors are hungry for any product that will offer even a little more yield.

While auto-related ABS still comprises more than 60% of yearly issuance, new esoteric volume is poised to increase this year. Of the roughly $31.6 billion in total ABS issued year-to-date, more than $5 billion, or nearly 16%, is comprised of so-called "off-the-run" collateral, according to IFR Markets data.

For the same period last year, only $900 million, or about 4% of the $22.4 billion total could be considered esoteric cashflows.

Of the approximately $125 billion in total ABS issued in 2011, about $15.5 billion, or 12.4%, consisted of debt backed by non-traditional cashflows, according to the Securities Industry and Financial Markets Association.

In terms of volume, non-traditional ABS reached its peak of US$66.1bn in 2005, according to SIFMA, but that year it only comprised 8% of the then-robust total ABS market of $754 billion, which included home-equity ABS issuance, a sector that was just beginning to ramp up amid the housing boom.

Given the much slower pace of current ABS issuance, however, esoteric deals are likely to comprise a larger percentage of the total market over the next few years, according to securitization experts.

"There is robust investor appetite for these deals, and they are now willing to move down the capital structure into subordinate tranches," said Jay Steiner, the co-head of the global credit solutions group at Deutsche Bank. "Even insurance companies are willing to take the time to get their arms around these transactions, which are typically much more complicated and have longer marketing periods than traditional consumer ABS."

CELL TOWERS, PIZZA AND DRUGS

A spate of off-the-run transactions have been pitched and successfully sold to investors over recent weeks, including a franchise-fee ABS refinancing from Domino's Pizza, a timeshare receivables transaction from Orange Lake Resorts, and a cell tower site lease offering from Global Tower Partners.

Due to investor demand, the Domino's deal was upsized at pricing this week to $1.575 billion from an original size of $1.475 billion. Several insurance-company investment managers were interested, and even called in to an issuer-led private conference call pitching the transaction to qualified investors on Feb. 29, including Debbie Adami of AIG Global Investment Corp., who asked a question to underwriters regarding the risk of prepayment on the deal.

Another off-the-run transaction – a so-called stranded-cost transition bond – priced on Wednesday from AEP Texas Central Company.

The $800 million offering consisted of three Triple A pieces and was issued to help the utility recover certain costs and regulatory assets. Usually, a specific charge imposed on the distribution of electricity to customers supports principal and interest payments on these types of bonds.

Meanwhile, a rare securitization backed by royalties flowing from pharmaceutical patents on established drugs is about to enter the asset-backed market next week. Credit Suisse and Wells Fargo have been mandated as joint bookrunners on DRI Capital's upcoming $195 million Drug Royalty LP1 transaction. Credit Suisse will act as structuring lead. 

The offering will be backed by the cashflows of 18 royalty streams on 14 patent-protected drugs. It is expected to be rated Baa2 (sf)/ BBB (sf) by Moody's/Standard & Poor's. 

DRI Capital purchases royalty streams on established pharmaceutical products developed to treat chronic, critical, and rare diseases. The partners in the company have been investing together for nearly ten years. 

Other "esoteric" deals are also in the hopper:  Next week, Barclays Capital (structuring lead) and Deutsche Bank will be joint-lead underwriters on a $226 million transaction backed by structured-settlement streams for J.G. Wentworth, the nation's largest buyer of illiquid financial assets and annuities.

A structured settlement securitization allows companies such as J.G. Wentworth to fund the purchase of monthly settlement payments from people who are willing to sell long-term payouts for a lump sum. Investors in these securitizations share in the risks and profits of such an arrangement.

Also next week, Sierra Wyndham will issue a $250 million offering backed by timeshare receivables. Deutsche Bank, Credit Suisse, and Royal Bank of Scotland are underwriting the transaction.

REVIVED OFFERINGS

Two of the recent offerings, the Domino's refinancing and the DRI Capital drug-royalty deal, were originally pitched to the market in the second half of 2011, but were each pulled at the time due to the macroeconomic global volatility caused by the European sovereign debt crisis.

Both offerings have now resurfaced in a much more upbeat, "risk on" environment, and investor interest in recent esoteric deals has been keen.

On February 23, a two-part $282 million cell tower transaction from GTP Cellular Sites attracted more than 25 investors across all tranches. The offering was backed by a portfolio of 1,177 ground-lease cashflows on various cell-tower sites.

GTP was able to achieve attractive leverage on the transaction -- about nine times cashflows down to a Triple B minus tranche -- and offered a blended yield of 5.03% to investors down to a Double B tranche. These tight spreads reflected a fairly attractive financing for the company.

The quest for higher yields has recently expanded beyond just esoteric collateral. Certain hedge funds have been buying deeply subordinated tranches on traditional consumer-asset deals as well, according to securitization specialists.

For instance, a recent $1.3 billion prime retail auto-loan ABS from Columbus, Ohio-based Huntington National Bank that priced on March 1 contained an "invisible" unrated residual tranche below the Triple B bond – the first such unrated tranche seen in the market since 2006.

Structured-credit hedge funds with an expertise in judging the direction of consumer behavior are able to leverage what they know in order to buy unrated auto ABS paper in order to get much higher yields, according to people familiar with the Huntington sale.

"They know these sectors so well, they don't need a rating in order to buy it," said one dealer away from the transaction.

Adam Tempkin

REUTERS IFR: Bonds backed by drug-royalty cashflows make a return

Bonds backed by drug-royalty cashflows make a return

NEW YORK, March 5 (IFR) - A rare securitization backed by royalties flowing from pharmaceutical patents on established drugs is about to enter the asset-backed market, according to investors.

Credit Suisse (structuring lead) and Wells Fargo have been mandated as joint bookrunners on DRI Capital's upcoming US$195m Drug Royalty LP1 transaction.

The offering will be rated Baa2 (sf)/ BBB (sf) by Moody's/S&P.  It will be backed by the cashflows of 18 royalty streams on 14 patent-protected drugs.

DRI Capital purchases royalty streams on established pharmaceutical products developed to treat chronic, critical, and rare diseases. The partners in the company have been investing together for nearly ten years.

The largest percentage of discounted royalty value in the securitized portfolio comes from the product Enbrel (32% of portfolio), a rheumatoid arthritis and psoriasis medication from Pfizer.

The second highest concentration (13%) is from the drug Remicade, a rheumatoid arthritis and Crohn's disease drug from Johnson & Johnson and Merck.

About 76.7% of drug companies represented by the portfolio have long-term AA/AA- or Aa1/Aa2/Aa3 ratings.

The fund's portfolio is comprised of very seasoned drugs that have been in the marketplace for many years.

DRI Capital will be the servicer, and the expected weighted average life of the transaction is 2.70 years.  Overcollateralization is approximately 34% at closing.

The company issued a previous drug-royalty securitization in 2007.

In aggregate, despite broader market turmoil, the actual royalties received on the portfolio have performed 10% better than DRI's original forecasts.

There have only been a handful of drug-royalty ABS transactions based on diversified pools of pharmaceutical patent royalties in the last 10 years. Therefore, it is considered an "esoteric" asset class, distinguishing it from commoditized consumer ABS asset classes such offerings backed by auto-loan or student-loan payments.

The BioPharma Royalty Trust, the Royalty Pharma Trust, Paul Capital's Royalty Securitization Trust and the DRI Capital Inc. transactions are the best-known examples of this type of securitization, according to the law firm Dechert.

"With the worldwide pharmaceutical market generating approximately US$800bn annually, securitization of drug royalty payment rights remains a field ripe for exploration," wrote Malcolm Dorris, a partner at Dechert, in a research article from last year.

Adam Tempkin

adam.tempkin@thomsonreuters.com