The spread between LIBOR and short term debt has fallen quite...

The spread between LIBOR and short term debt has fallen quite sharply in recent times as the massive liquidity injection by central banks around the world start to have some effect. If this continues to ease into Feb, Centro may just be able to refinance its short term debt and buy themselves some time (9 months) before the next short term debt matures. They can then use this time to restructure their debt in a more control fashion.

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http://www.bloomberg.com/apps/news?pid=20601087&sid=avIqMn5Wi.Vo&refer=home

Asset-Backed Paper Grows for First Time Since August (Update4)

By Bryan Keogh

Jan. 3 (Bloomberg) -- For the first time since the August freeze in the credit markets, companies issued more IOUs backed by collateral as the cost to borrow in the short-term debt fell to the lowest in 22 months.

Commercial paper backed by mortgages, credit-card loans and other assets rose $26.3 billion to a seasonally adjusted $773.8 billion for the week ended Jan. 2, the Federal Reserve in Washington said today.

The 3.5 percent increase, the biggest gain in at least seven years, snapped a 20-week losing streak that began as losses from subprime mortgages caused a retreat from all but the safest government debt. Yields on the paper due in 30 days posted their biggest weekly decline in at least a decade as investors became more willing to hold the debt.

``The market is stabilizing,'' said Neal Neilinger, managing director and co-founder at NSM Capital Management LLC in Greenwich, Connecticut. ``I don't think we'll see another drop, unless there's another headline that hits.''

Interest rates on the short-term debt due in 30 days fell 1.16 percentage point this week to 4.63 percent, or 9 basis points more than the one-month London interbank offered rate, Bloomberg data show. The spread fell from 116 basis points, the widest on record, on Dec. 28. In the first half of 2007, the yield on asset-backed commercial paper was on average 5.5 basis points less than Libor. A basis point is 0.01 percentage point.

``The market's in a process of healing,'' Neilinger said in a telephone interview. ``The weakest are going to fall and the strongest are going to survive.''

Central Bank Efforts

Central bank measures to relieve a year-end logjam in money markets helped lower yields. The European Central Bank on Dec. 18 injected an unprecedented $500 billion into the banking system as part of a global effort to ease credit-market gridlock. Central banks in the U.S., U.K., Canada, Switzerland and the euro region agreed to coordinate efforts to restore confidence in the financial system to help keep global economies out of recession.

The broader commercial paper market rose $13.2 billion in the most recent week to $1.8 trillion, according to the Fed data. Companies typically sell commercial paper, which usually matures in three months or less, to help pay for day-to-day expenses including payroll and rent.

The rise in asset-backed commercial paper, which matures in 270 days or less, snapped a retreat of $447.6 billion, or 37 percent, that began after the market reached a peak on Aug. 8 of $1.2 trillion.

`Shadow' Banking System

The contraction resulted from a ``disappearance of the `shadow' banking system that had allowed banks to securitize their mortgage loans and move assets off their balance sheets,'' David Rosenberg, chief economist at Merrill Lynch & Co. in New York, said yesterday in a research report.

The lowest tier of issuer is paying about 50 to 60 basis points more than the largest, most liquid programs, compared with a couple of basis points six months ago, said Alex Roever, a debt strategist at JPMorgan Chase & Co. in New York. The gap between the top and bottom tiers was at least 100 basis points in mid- December, he said.

``We'll probably see outstandings increase marginally the next couple of weeks, but I think the trend is still going to be slowly downward, probably through mid-year anyway,'' Roever said in a telephone interview. ``It's a very tough market from a financing perspective right now.''

Structured Investment Vehicles

Sales of asset-backed commercial paper surged through June as structured investment vehicles sold record amounts of the debt. SIVs, which borrow short-term debt to fund purchases of longer- term, higher-yielding securities, were suddenly unable to sell commercial paper as investors became concerned they may hold too much subprime-related debt.

Without the ability to tap the markets, SIVs such as Cheyne Finance Plc and Rhinebridge Plc wound down, while Citigroup Inc., HSBC Holdings Plc and other banks agreed to bail out their funds. Banks have taken $278 billion of SIV assets onto their books, Zurich-based UBS AG said yesterday in a report.

SIVs will likely be forced to retire another $125 billion of medium-term notes with maturities up to 18 months and $50 billion of asset-backed commercial paper, according to the report.