ABCP for Auction-Rate Rescue ?

The U.S. Treasury Department is working with Goldman Sachs and Lehman Brothers to create an outlet for billions of dollars of illiquid student-loan securities.

Details are sketchy, but the program apparently calls for Goldman and Lehman to create an asset-backed commercial paper facility - either through new or existing conduits - that would fund purchases of auction-rate student-loan bonds by issuing short-term debt secured by those instruments.

The effort marks the U.S. government’s first significant attempt to address an ongoing freeze-up in the market for auction-rate securities...

Industry insiders say federal intervention by means of a commercial-paper conduit makes sense, as many of the underlying receivables carry 97% guarantees from the U.S. government. That means neither the Treasury nor buyers of the resulting conduit paper would incur a tremendous amount of risk, making the program a relatively easy sell.

On the same note, it’s unlikely that a conduit operator would be motivated to pursue such an undertaking without a nudge from the government.