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09 Jun 2006
MOODY'S ASSIGNS PROSPECTIVE RATINGS TO STANDARD CHARTERED BANK'S PROPOSED SYNTHETIC CLO DEAL
Approximately US$182.4 Million of Proposed CLO Securities Rated
Hong Kong, June 09, 2006 -- Moody's assigned prospective rating of (P)Aaa to the Class A notes issued
by Start II CLO Limited. The proposed transaction is a balance
sheet synthetic CLO transaction sponsored by Standard Chartered Bank (SCB)
and co-arranged by Lehman Brothers and SCB. At the same
time, Moody's assigned prospective ratings of (P)Aa2 to Class B
notes, (P)A2 to Class C notes, (P)Baa2 to Class D notes and
(P)Ba1 to Class E notes issued by Start II CLO Limited respectively.
This is SCB's second synthetic CLO issuance of its wholesale bank portfolio.
The complete rating action is as follow:
Issuer: Start II CLO Limited
US$ million Class A credit-linked floating rate
notes due [June 2012], rated (P)Aaa;
US$ million Class B credit-linked floating rate
notes due [June 2012], rated (P)Aa2;
US$ million Class C credit-linked floating rate
notes due [June 2012], rated (P)A2;
US$[15.2] million Class D credit-linked floating
rate notes due [June 2012], rated (P)Baa2; and
US$[15.2] million Class E credit-linked floating
rate notes due [June 2012], rated (P)Ba1.
The prospective ratings are assigned based on information of the portfolio
of reference obligations, the expected structure and credit tranching
as of 8 June 2006. The final ratings are subject to finalisation
of the portfolio and the structure.
In assigning the prospective 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.
PROPOSED TRANSACTION SUMMARY
On closing date, SCB, as the swap counterparty, will
enter 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. The issuer is expected
to place all proceeds of the notes into cash deposits with [Deutsche
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 will be 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.
At closing, the proceeds of the notes are expected to be held in
cash deposits in the principal collection account at [Deutsche Bank].
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 will also be 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 will be approved
by all parties at closing). 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
As of 8 June 2006, the proposed initial portfolio has 174 reference
obligations, and the total aggregate notional amount is approximately
US$1.6 billion. The proposed initial portfolio has
an Asian component of 55.4% and Hong Kong component of about
24%. 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 loans are repaid, 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 test. The replenishment
period can also end if losses exceed [3.6]% of the
initial portfolio notional amount or if defaulted amounts exceed %
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 provisional ratings.
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
site in the Pre-sale Reports section.
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.
© 2019 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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