First the bad news: the securities valuation office of the US National Association of Insurance Commissioners (NAIC) has ruled that the very first Lehman Brothers ECAP is equity. Insurers would be required to hold greater amounts of capital against ECAP structures that are regarded as equity rather than preferred securities.
Spreads on ECAP deals widened by up to 10 basis points in reaction to the news before bargain hunters emerged. Eventually the deals closed just 2bp to 3bp wider at plus 71bp to 76bp.
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