| Current ratings | ||||
|---|---|---|---|---|
| ABCP notes(i) | Rating | |||
| Standard ABCP notes | A-1 (sf) | |||
| Callable ABCP notes | A-1 (sf) | |||
| (i)The ABCP notes listed above can be issued at a discount or bear interest at a fixed or floating rate. The ABCP is denominated in U.S. dollars. ABCP--Asset-backed commercial paper. | ||||
Rationale
The short-term 'A-1 (sf)' ratings on Fairway Finance Co. LLC's (Fairway) U.S. dollar-denominated standard and callable asset-based commercial paper (ABCP) notes reflect the following:
- The program's legal structure, including Fairway's intended bankruptcy-remote status;
- The full credit and liquidity support provided by a program-level liquidity agreement;
- Support providers rated 'A-1' or higher that provide liquidity or indemnification support for any hedging shortfalls; and
- The experience and ability of BMO Capital Markets Corp., as program administrator, to carry out day-to-day operational services to Fairway, such as adding new sellers, monitoring seller performance, administering and monitoring the maturity of ABCP, and drawing on liquidity and credit facilities to repay ABCP on a timely basis.
Environmental, Social, And Governance (ESG)
The credit quality of the underlying assets is not material to our rating analysis, and so there generally are no material ESG credit factors at the asset level. Support providers in ABCP conduits are typically highly rated financial institutions, and our assessment of their creditworthiness incorporates any material ESG credit factors. In our view, exposure to ESG factors in this transaction is limited to the factors related to the support provider. For further information, see our U.S. and Canadian, EMEA, Asia-Pacific, and Latin American bank ESG industry report cards (https://www.spglobal.com/ratings/en/products-benefits/products/esg-in-credit-ratings#sector-report-cards).
Program Structure
The chart below shows an overview of the program's structure.
Key Features
Fairway is a bankruptcy-remote, special-purpose, Delaware limited liability company. BMO Capital Markets Corp. serves as the administrative and servicing agent for the program.
Fairway was established to issue U.S. dollar-denominated ABCP notes that can be issued at a discount or bear interest at a fixed or floating rate with a maturity of up to 365 days. The notes can be standard and callable. The date will not be greater than 365 days for both the standard ABCP notes and the callable ABCP notes. For notes with an optional feature that is not exercised, the note is required to be paid on its stated maturity date in an amount equal to principal and interest or discount (as applicable), accrued and unpaid or accreted up to the stated maturity date.
The callable notes will give Fairway the right to redeem, in whole, the related callable note on its call date. The notes can be called in whole or in part. The proceeds of the ABCP issuance will be used to finance the purchase of financial assets that will be identified and arranged by Bank of Montreal for acquisition.
Because the ABCP notes are intended to be fully supported based on the program-level liquidity agreement with the liquidity provider, Bank of Montreal, we did not evaluate the sufficiency of the assets. Instead, we linked our 'A-1 (sf)' ratings on the notes to our rating on Bank of Montreal. Therefore, changes to our ratings on the notes can result from, among other things, changes to our rating on Bank of Montreal.
Program Overview
| Program Details | |
|---|---|
| Program name | Fairway Finance Company LLC |
| Program type | Multi-seller |
| Sponsor | Bank of Montreal |
| Administrator | BMO Capital Markets Corp. |
| Maximum program limit | $15,000,000,000 |
| Reported program-wide credit enhancement | Not applicable--fully supported |
| Support type | Full |
| Review type | Program-level |
| Preference risk | Covered by program-level liquidity |
| Bankruptcy-remoteness | Opinions, as applicable, were reviewed as part of Fairway Finance Company LLC's bankruptcy-remoteness status under Delaware law |
| Rating dependent participants | |
| Liquidity providers | Bank of Montreal |
| Support provider | Bank of Montreal |
| Bank account provider | BMO Harris Bank N.A. |
| Non-rating dependent participants | |
| Administrative agent | BMO Capital Markets Corp. |
| Servicing agent | BMO Capital Markets Corp. |
| Depositary/issuing and paying agent | Deutsche Bank Trust Co. Americas |
| Collateral trustee | Deutsche Bank Trust Co. Americas |
Counterparty/Credit Quality
Liquidity support
Bank of Montreal provides a program-level liquidity agreement that fully supports all notes issued to fund Fairway's transactions.
Credit support
The program is fully supported by a program-level liquidity agreement covering all credit-related risks.
Interest rate protection
Fairway has the ability to issue floating-rate ABCP. Any increase in the floating rate due on the ABCP is indemnified by Bank of Montreal.
Foreign exchange hedging
The administrative agent intends all amounts (assets, liquidity, ABCP, etc.) to be in U.S. dollars, and thus there will be no foreign exchange risk in paying the ABCP. If a liquidity agreement is denominated in a currency other than U.S. dollars, Fairway intends to fully wrap it on a transaction-specific basis through the liquidity provider.
Liquidity outs and limitations
The liquidity provider is not obligated to fund the conduit beyond its liquidity commitment or if Fairway is insolvent.
Legal
Fairway Finance Company LLC is a special-purpose, limited-liability company organized in November 1997 under Delaware law. Fairway has been analyzed and is consistent with S&P Global Ratings' bankruptcy-remoteness criteria.
Clawback/preference risk
ABCP investors are insulated from legal risks associated with a seller or originator bankruptcy. This is accomplished by the liquidity provider funding all preference payments through the program-level liquidity agreement.
Cash Flow And Payment Structure
Liability issuance tests
The conditions necessary for Fairway to issue notes include, but are not limited to, the following:
- The aggregate face amount of notes does not exceed the program amount;
- The total support obligations under the liquidity facility do not exceed the available liquidity commitment;
- The maturity date of the notes is not later than 365 days from date of issuance for both the standard ABCP and callable ABCP; and
- Fairway is not insolvent.
Program wind-down events
Fairway has a number of events outlined in the program documents that would lead to it ceasing issuance of ABCP, including:
- The liquidity provider is not obligated to make payments if its total investment exceeds 102% of its related commitment or if its purchased interest exceeds its aggregate commitment; and
- The insolvency of Fairway.
Waterfall/payment priority
The servicing agent (BMO Capital Markets Corp.) shall cause any available excess funds to be applied to the following obligations in the order of priority:
- Payment on a pro rata basis of all outstanding principal of any ABCP notes and any interest due;
- Payment on a pro rata basis of all amounts (other than breakage) due to the counterparties under the hedge contracts;
- Payment of any depositary advances due to any maturing ABCP note; and
- Payment on a pro rata basis of all fees due under the program documents.
Operational Risk
Review status
All of Fairway's transactions are fully supported by a program-level support agreement that is independent of the execution of transaction-specific documents (conduit-level fully supported ABCP). Any amendments to the program documents will be reviewed prior to closing by S&P Global Ratings.
Administrator review
The program administrator's experience and past performance are factors in the ratings process. S&P Global Ratings conducts administrator business reviews to evaluate BMO Capital Markets Corp.'s ability to carry out responsibilities under the program documents, such as:
- Originating and structuring new receivables pools;
- Performing a formal credit evaluation for each new seller and the related receivables;
- Maintaining ongoing surveillance of liquidity facilities;
- Maintaining and administering the issuance and maturity of notes; and
- Drawing on liquidity facilities as necessary to repay noteholders on a timely basis.
Based on the outcome of the reviews and ongoing communications with BMO Capital Markets Corp., we are satisfied that BMO Capital Markets Corp. is capable of carrying out its responsibilities under the program documents.
Surveillance
The ratings on all Fairway support providers are 'A-1' or higher. S&P Global Ratings monitors the ratings on all support providers on an ongoing basis.
Portfolio data
The conduit sponsor has provided capacity utilization data for the portfolio as a part of S&P Global Ratings' ABCP conduit surveillance process, which is presented below in a standardized format.
Chart 2
Related Criteria
- Criteria | Structured Finance | General: Global Framework For Payment Structure And Cash Flow Analysis Of Structured Finance Securities, Dec. 22, 2020
- U.S. Structured Finance Asset Isolation And Special-Purpose Entity Criteria, May 15, 2019
- Criteria | Structured Finance | General: Counterparty Risk Framework: Methodology And Assumptions, March 8, 2019
- Criteria | Structured Finance | ABCP: Global Methodology For Analyzing Liquidity Funding Outs And Limitations In ABCP Transactions, Oct. 27, 2014
- Criteria | Structured Finance | General: Global Framework For Assessing Operational Risk In Structured Finance Transactions, Oct. 9, 2014
- General Criteria: Global Investment Criteria For Temporary Investments In Transaction Accounts, May 31, 2012
- Criteria | Structured Finance | ABCP: Asset-Backed Commercial Paper Issued By Multiseller Conduits: Classification And Timing Of Reviews For New-Seller Transactions, April 18, 2011
- General Criteria: Principles Of Credit Ratings, Feb. 16, 2011
- Criteria | Structured Finance | ABCP: S&P Global Ratings' Analysis Of ABCP Ratings Following Changes To Ratings On Support Providers, Dec. 18, 2008
- Criteria | Structured Finance | ABCP: Global Asset-Backed Commercial Paper Criteria, Sept. 29, 2005
Related Research
- Global Structured Finance Scenario And Sensitivity Analysis 2016: The Effects Of The Top Five Macroeconomic Factors, Dec. 16, 2016
- Standard & Poor's Clarifies Its Approach To Requests For Rating Agency Confirmation On Structured Finance Transactions, May 18, 2012
- Assessing Credit Quality By The Weakest Link, Feb. 13, 2012
- Standard & Poor's Requests Transaction Performance Metrics From Sponsors Or Administrators Of Global ABCP Conduits, Jan. 12, 2012
This report does not constitute a rating action.
| Primary Credit Analyst: | Thomas G Dunn, New York + 1 (212) 438 1623; thomas.dunn@spglobal.com |
| Research Contributor: | Nalini Singh, CRISIL Global Analytical Center, an S&P affiliate, Mumbai |
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