The relationship between net asset value (NAV) and income from 12b-1 fees makes equity market volatility an important factor in 12b-1 fee asset securitizations, but it is not the only one, according to a report from Standard & Poor’s.

In particular, more recent 12b-1 fee securitization transactions have included hedging that functions as credit enhancement. "While the probability of default, or default frequency, does benefit from the embedded hedges, the principal goal of the addition of the hedge mechanism from an issuer standpoint was to lower the magnitude, or severity, of capital losses upon an occurrence of default," the report states.

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