MOODY'S ASSIGNS Aaa TO THE GOLDEN JADE SYNTHETIC CDO MANAGED BY AGRICULTURAL BANK OF CHINA
US$57.5 Million of Asset-Backed Securities Rated
Hong Kong, June 23, 2003 -- Moody's Investors Service has assigned the long-term rating of
Aaa to the Class A floating rate notes issued jointly by Golden Jade CDO
Limited and Golden Jade CDO LLC (together, the co-issuers).
At the same time, Moody's has also assigned the ratings of Aa1 to
the Class B floating rate notes and A3 to the Class C floating rate notes
issued by the co-issuers. The transaction is a synthetic
CDO transaction and brought to the market by Lehman Brothers International
(Europe) with Agricultural Bank of China as the portfolio manager.
The complete rating action is as follows:
Co-Issuers: Golden Jade CDO Limited and Golden Jade CDO LLC
US$20,000,000 Class A Floating Rate Notes due 2006,
US$10,000,000 Class B Floating Rate Notes due 2006,
US$27,500,000 Class C Floating Rate Notes due 2006,
The ratings are primarily based on the following factors:
1. the credit quality of the underlying reference entities
2. the diversity of the underlying reference entities
3. the credit quality of General Electrical Capital Corporation
(Aaa), who guarantees the payment obligations of FGIC Capital Market
Services, Inc. pursuant to an investment agreement
4. the partial CDS premium payable in advance to the issuer by
Lehman Brothers Special Financing Inc. (the "CDS counterparty")
5. the credit quality of Lehman Brothers Holdings Inc. (A2/Prime-1),
who guarantees the obligations of the CDS counterparty pursuant to the
6. the credit enhancement provided to each of the class A,
class B and class C notes and their respective payment and loss allocation
7. the retention of excess spread as additional credit enhancement
8. the legal and structural integrity of the transaction.
The ratings address the timely payments of interest and the ultimate repayment
of principal at par by the legal final payment date in November 2006.
Moody's ratings address only the credit risks associated with the transaction.
Other non-credit risks, such as those associated with the
timing of principal prepayments, have not been addressed and they
may have a significant impact on the yield to investors.
The current transaction is an arbitrage synthetic CDO transaction managed
by a portfolio manager in China. The issuer has invested the note
proceeds with FGIC Capital Market Services, Inc. under an
investment agreement (the permitted investment). The obligation
of FGIC Capital Market Services, Inc. under the investment
agreement are guaranteed by General Electric Capital Corporation which
is Aaa-rated by Moody's.
At the same time, the issuer will enter into a credit default swap
(the "CDS") with Lehman Brothers Special Financing Inc. (the "CDS
counterparty") with respect to a portfolio of 120 reference entities.
As of the closing date, the total reference notional amount is US$
1 billion and each reference entity would have a reference entity notional
amount of approximately US$8.33 million. Under the
CDS, the issuer will provide credit protection to the CDS counterparty
who in return will pay CDS premium to the issuer until the scheduled final
payment date in May 2006. CDS counterparty's obligations under
the CDS is guaranteed by Lehman Brothers Holdings Inc. (rated A2
In each period, the CDS premium will be paid in two instalments
--- 1) the initial CDS premium and 2) the additional
CDS premium. The initial CDS premium is paid in advance to cover
the expected senior fees and expenses and required spread of note interests
(after accounting for the interests earned on the permitted investment).
The additional CDS premium to be paid in arrears is equal to the total
CDS premium minus the initial CDS premium together with the interests
The initial CDS premium together with the interests thereon and interests
earned on the permitted investments will be used by the co-issuers
to pay certain senior fees and expenses and interest payments on the notes.
Any excess funds after satisfying the above payments together with the
additional CDS premium will be retained in a reserve account to provide
additional credit enhancement to cover potential losses arising from the
payment of credit protection amounts and substitution of the underlying
The transaction will adopt a settle-at-the-end structure.
On the scheduled final payment date, the permitted investments and
the balance in the reserve account (if any) will be used in the following
order: (1) to repay any unpaid credit protection amount owing to
the CDS counterparty, (2) to build up a contingent payment reserve,
and (3) to repay the noteholders. The contingent payment reserve
is set up to meet the credit protection payment obligations of the issuer
for those unsettled credit events occurring on or prior to the scheduled
final payment date. The order of priority of principal payments
will start from the Class A notes, followed by the Class B notes,
and finally the Class C notes. On each payment date after the scheduled
final payment date, holders of the outstanding notes will only receive,
based on the outstanding principal balance of the respective notes,
a pro rata share of the interests earned from the investment of the contingent
During the term of the transaction and subject to satisfaction of certain
criteria, Agricultural Bank of China (Baa1/Prme-2/E),
as the portfolio manager, will be allowed to substitute four underlying
reference entities each year.
THE REFERENCE PORTFOLIO
As of the closing date, the underlying reference portfolio consists
of one hundred and twenty (120) reference entities, and with an
aggregate notional amount of US$ 1 billion. Each reference
obligation has a reference entity notional amount of approximately US$8.33
million. These reference entities have a weighted average credit
quality of Baa1/Baa2 and a diversity score of 72. The reference
portfolio is well diversified in terms of industry composition with reference
entities coming from 31 different industries out of the 33 Moody's industry
classifications. The top 6 industries are banking (7.5%),
telecommunications (7.5%), insurance (7.5%),
buildings and real estate (6.7%), retail stores (6.7%),
and utilities (6.7%) respectively. In terms of geographical
distribution, the underlying reference entities as of the closing
date are predominately US and European entities with approximately 67%
of the reference entities in the US, 22% in Europe while
the remaining 11% in Asia and Australia.
Apart from the credit quality and characteristics of the underlying reference
entities, Moody's also considers other issues such as the definition
of credit events, the reference obligations, the deliverable
obligations, the settlement procedures, cash flow and loss
distribution priorities, and the permitted investment arrangement
in constructing the cash flow model.
To determine the amount of credit enhancement required for each class
of the notes, Moody's performs a multi-binomial expansion
analysis, which is an extension of the single binomial expansion
technique. Multiple binomial analysis is particularly useful to
account for a wide range of rating distribution of the portfolio that
might have a material impact on the ultimate expected loss of the rated
A more detailed analysis of the transaction will soon be available at
Moody's web site in the New Issue Reports section: http://
THE PORTFOLIO MANAGER
Agricultural Bank of China (Baa1/Prime-2/E) is the portfolio manager
of this transaction. It is a wholly state-owned commercial
bank incorporated in 1979 in Beijing. It has registered with People's
Bank of China as a "Fixed-income Securities Dealer". It
provides investment management services to institutional investors and
high net worth individuals, primarily in the PRC. Its principal
areas of business include deposit-taking and lending, clearance
and settlement, asset management and investment advice. As
of 30 April 2003, the total assets under its management were about
The securities will not be registered under the Securities Act of 1933
(the Act) under circumstances reasonably designed to preclude a distribution
thereof in violation of the Act. The issuance will be designed
to permit resale under Rule 144A.
Moody's Investors Service is a publisher of rating opinions and research.
It is not involved in the offering or sale of any securities, nor
is it acting on behalf of the offering party. This release is not
a solicitation or a recommendation to buy, hold or sell securities.
Michael M. Ye
Structured Finance Group
Moody's Asia Pacific Ltd.
Vice President - Senior Analyst
Structured Finance Group
Moody's Asia Pacific Ltd.