SEC Ruling Opens Doors To Exotic New Kinds of Bonds

WANT to buy a bond backed by leases or future royalty checks? How about Medicare receivables?

A rule passed last week by the Securities and Exchange Commission could open up a whole new world of asset-backed investments for investors big and small.

"The sky's the limit," said Marianna Maffucci of the Public Securities Association. Asset-backed securities are backed by the cash flows from a pool of loans, such as car and boat loans or credit-card receivables. Wall Street investment bankers have hatched ever more exotic and riskier types of bonds.

Until now, these products have been sold to foreign investors or privately placed to sophisticated investors, such as insurance companies and pension funds, which can make sure the bonds are safe.

Selling them to the individual investor has been more difficult. To do so, the issuers must meet the same strict disclosure requirements that mutual funds do.

There has been a huge demand for such securities, proponents say. Investors like them because they offer a relatively high yield for the amount of risk involved. Last year, all investors bought more than $300 billion worth of these securities, up from $500 million in 1980.