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29 Jun 2006
MOODY'S ASSIGNS DEFINITIVE RATINGS TO STANDARD CHARTERED BANK'S SECOND SYNTHETIC CLO DEAL
Approximately US$182.4 Million of CLO Securities Rated
Hong Kong, June 29, 2006 -- Moody's assigned rating of Aaa to the Class A notes issued by Start II
CLO Limited. The transaction is a balance sheet synthetic CLO transaction
sponsored by Standard Chartered Bank (SCB) and co-arranged by Lehman
Brothers and SCB. At the same time, Moody's assigned ratings
of Aa2 to Class B notes, A2 to Class C notes, Baa2 to Class
D notes and Ba1 to Class E notes issued by Start II CLO Limited respectively.
This is SCB's second synthetic CLO issuance of its wholesale bank portfolio.
The complete rating action is as follow:
Issuer: Start II CLO Limited
US$108 million Class A credit-linked floating rate notes
due 29 June 2012, rated Aaa;
US$24 million Class B credit-linked floating rate notes
due 29 June 2012, rated Aa2;
US$20 million Class C credit-linked floating rate notes
due 29 June 2012, rated A2;
US$15.2 million Class D credit-linked floating rate
notes due 29 June 2012, rated Baa2; and
US$15.2 million Class E credit-linked floating rate
notes due 29 June 2012, rated Ba1.
In assigning the ratings, Moody's considered the following:
- The credit quality and diversity of the reference portfolio;
- The governing ISDA documentation;
- The level of subordination for the different classes of notes;
- The collateral being placed in cash deposits; and
- The structure of the transaction including the early redemption,
enforcement date and early termination.
SCB enters into a CDS with the issuer, Start II CLO Limited,
related to a portfolio of corporate loans (reference portfolio) that meets
certain criteria as to creditworthiness and diversity. All proceeds
of the notes are placed into cash deposits with Deutsche Bank, Hong
There will be a replenishment period of three and a half years in which
SCB can replenish the exposures of certain names that have amortized or
replace these names with new ones, both subject to the replenishment
criteria being met.
Interest on the notes will be paid quarterly, while principal repayments
on the notes can occur prior to the initial redemption date depending
on (i) amortization of the underlying loans, (ii) occurrence of
early redemption date, (iii) occurrence of enforcement date or (iv)
designation by the swap counterparty of a regulatory change.
Five rated classes of notes have been issued. Upon settlement of
a credit protection payment, if the cumulative losses exceed the
3.6% threshold amount, the outstanding principal amounts
of the notes will be written down by the same amount in reverse alphabetical
order of the notes starting from Class E notes, followed by Class
D notes, Class C notes, Class B notes and Class A notes sequentially.
As loans are amortized the notes will be repaid according to seniority
with Class A notes being paid first and so forth. However,
as the issued amount only makes up approximately 11% of the total
portfolio with a large super senior tranche ahead of the Class A note,
it is not expected that there will be any amortization of the notes prior
to the scheduled maturity date.
The proceeds of the notes are held in cash deposits in the principal collection
account at Deutsche Bank, Hong Kong branch. Interest earned
on the deposits will be used to cover part of the interest expense on
the notes. As cash settlements or amortization of the notes occur,
the cash in the account will be used to pay the counterparty in the former
case and the note holders in the latter case. However, there
is also a collateral switch agreement at closing whereby the swap counterparty
can, in the future, instruct the issuer to enter into a repurchase
agreement (the form of which has been approved by all parties).
At that time, cash deposits being held in the principal collection
account will be used to purchase eligible securities from the repo counterparty.
THE REFERENCE PORTFOLIO
The initial portfolio has 171 reference obligations, and the total
aggregate notional amount is approximately US$1.6 billion.
The portfolio has an Asian component of 52% and Hong Kong component
of about 21%. Although the initial portfolio is distributed
across 27 Moody's industry categories, the top four industries make
up approximately 42% of the portfolio.
The transaction will have a three and a half year replenishment period
whereby as loan amounts are reduced, SCB has the option to replenish
the same name in the portfolio or to add a new name so long as the replenishment
conditions are met. Part of the replenishment conditions include
passing the Moody's Manage-to-Model CDOROM test.
The replenishment period can also end if losses exceed 3.6%
of the initial portfolio notional amount or if defaulted amounts exceed
6% of the initial portfolio notional amount.
Some of SCB's customers are not publicly rated by Moody's, therefore,
Moody's used a quantitative mapping approach, and a qualitative
review of SCB's internal rating process to give credit to those non-rated
reference entities. Using the mapping approach, Moody's determined
the credit quality of the initial portfolio is consistent with a weak
The mapped ratings, which provided the default probabilities,
combined with historical recovery rates, were included into the
CDOROM which models each reference obligation individually with a standard
multifactor model, incorporating intra- and inter-industry
correlations. In each Monte Carlo scenario, defaults and
recoveries are simulated and cumulative losses were then derived on the
portfolio which in turn were allocated to the different classes based
on their priority of payments. By repeating this process and averaging
across the number of simulations, an estimate of the expected losses
borne by the notes were derived. These expected losses were then
mapped to a rating to achieve the assigned ratings.
For classes B, C, D and E the assigned ratings have additional
buffer, therefore even if the portfolio deteriorates marginally
during the replenishment period, the ratings should hold at their
current levels, barring any other deterioration of the transaction.
The issuer is a public limited company newly incorporated in the Cayman
Islands. It has no previous operation and is a special purpose
vehicle established solely for the purpose of entering into the current
transaction. The proposed transaction is sponsored by Standard
Chartered Bank (SCB) (A2/P-1). Standard Chartered PLC and
its consolidated subsidiaries (Group) is an international banking and
financial services group focused on the markets of Asia, Africa
and the Middle East. SCB is the main operating subsidiary of Standard
Chartered PLC. The Group provides a wide range of financial products
and services to its customers through two main business divisions,
consumer banking and wholesale banking.
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.
A more detailed analysis of the transaction is available at Moody's web
Structured Finance Group
Moody's Asia Pacific Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (852) 2916-1121
VP - Senior Credit Officer
Structured Finance Group
Moody's Asia Pacific Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (852) 2916-1121
No Related Data.
© 2020 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.
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