MOODY'S RATES HVB'S ASIAN HYBRID CDO TRANSACTION Aaa
US$180 Million of Asset-Backed Securities Rated.
New York, March 12, 2003 -- Hong Kong, March 13, 2003 -- Moody's has assigned
a long-term rating of Aaa to the Class A secured floating-rate
notes issued by Artemus Strategic Asian Credit Fund Limited (the issuer).
At the same time, Moody's has assigned ratings of Aa2 to the Class
B secured floating-rate notes, A2 to the Class C secured
floating-rate notes and Baa2 to the Class D secured floating-rate
notes issued by the issuer.
The transaction is the first hybrid CDO deal managed by an Asian collateral
manager with credit default swaps and cash bonds as the underlying assets.
It is brought to the market by Bayerische Hypo-und Vereinsbank
AG, Singapore Branch. HVB Asset Management Asia Limited serves
as the collateral manager. Moody's does not rate the subordinated
Class E secured subordinated notes. The complete rating action
is as follows:
Issuer: Artemus Strategic Asian Credit Fund Limited
US$127,000,000 Class A Secured Floating-Rate
Notes due March 2010, rated Aaa
US$20,000,000 Class B Secured Floating-Rate
Notes due March 2010, rated Aa2
US$20,000,000 Class C Secured Floating-Rate
Notes due March 2010, rated A2
US$13,000,000 Class D Secured Floating-Rate
Notes due March 2010, rated Baa2
The ratings assigned are primarily based on
1. the credit quality of and diversity among the underlying obligors
in the synthetic security portfolio;
2. the credit quality of and diversity among the underlying debt
securities in the debt security portfolio;
3. the credit quality of AIG Financial Products Corp. whose
obligations under this transaction is guaranteed by American International
Group Inc (Aaa) as the repo counterparty;
4. the credit quality of the Aaa-rated super senior credit
default swap counterparty;
5. the credit quality of AIG Matched Funding Corp. (Aaa)
as the GIC provider;
6. the credit quality of BNP Paribas (Aa2/Prime-1),
Deutsche Bank AG London (Aa3/Prime-1), and JPMorgan Chase
Bank (Aa3/Prime-1) as initial synthetic security obligors;
7. the credit quality of Deutsche Bank AG London as initial hedge
counterparty to provide various cross-currency and interest-rate
8. the CDS premiums payable by the synthetic security obligors
to the issuer under the credit default swap (the CDS) of the synthetic
security portfolio and the interest collections from GIC accounts and
the underlying debt securities;
9. the over-collateralisation and interest coverage ratio
tests to divert excess spread collections to cover losses in the transaction;
10. the loss allocation arrangement of the transaction to which
the Class A through Class D noteholders are exposed;
11. the experience of HVB Asset Management Asia Limited (HVBAM)
as the collateral manager; and
12. the legal and structural integrity of the transaction.
The ratings address the timely payments of interest on or before and the
ultimate repayment of principal at par by the maturity date in March 2010.
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 issuer is a newly established special purpose company in the Cayman
Islands for the purpose of entering into the current transaction.
The net note issuance proceeds are used to purchase a portfolio of cash
ABS bonds amounting to US$120 million. The issuer at the
same time deposits US$80 million into the GIC accounts.
In addition, the issuer is expected to enter into CDS as a credit
protection seller for an aggregate CDS notional amount of US$880
million with three initial CDS counterparties.
On each interest payment date, the issuer, after payments
of certain senior fees and expenses and the super senior swap premium,
will use the remaining interest collections from the GIC accounts,
the cash ABS bonds, the hedge agreements, and the CDS premiums
from the CDS to meet its interest payments on the rated notes.
Upon the occurrence of a credit event under the CDS, the issuer
- as the credit protection seller - will be required to
pay to the synthetic security obligor a credit protection payment in exchange
for the physically settled deliverable obligation. The credit protection
amount, which is equal to the full notional amount of the reference
obligation - credit event of which has been triggered- will
first be met by a withdrawal from the GIC accounts and then from the principal
If the fund in the GIC accounts and principal proceeds account is insufficient
to cover the credit protection payments payable to the synthetic security
obligor, the issuer will fund the credit protection payments by
selling the underlying cash bonds under a repo agreement. Any further
shortfall will be funded by an advance from the Aaa-rated super
senior swap counterparty.
The repo arrangement and the advance from the super senior swap counterparty
is designed to mitigate the potential market value loss arising from the
liquidation of the cash bonds on the open market. The issuer,
subject to the availability of fund, will repay the advance from
the super senior swap counterparty and repurchase the sold securities
from the repo counterparty
The transaction will have a reinvestment period of 5 years during which
the collateral manager is allowed to reinvest the principal collections,
to replace the cash bonds, and to substitute the reference entities
of the CDS.
On the first interest payment date after the reinvestment period -
which is expected to be on the interest payment date in March 2008 -
the issuer will redeem the outstanding notes on a sequential basis with
the remaining balance in the GIC accounts and the principal collections
in the principal proceeds account.
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, the GIC, the repo agreement and the
advance from the super senior swap counterparty in constructing the cash
To calculate the amount of credit enhancement required for each class
of notes, Moody's applied the multiple binomial expansion method.
Owing to the distinct characteristics of the underlying exposure,
Moody's has segregated the underlying collateral assets into two sub-portfolios
- the debt security portfolio and the synthetic security portfolio.
The debt security portfolio consists of highly rated structured finance
securities (ABS bonds), while the synthetic security portfolio comprises
mainly investment grade corporate and sovereign securities.
A more detailed analysis of the transaction will soon be available at
Moody's web site in the New Issue Reports section: http://
THE COLLATERAL MANAGER
HVB Asset Management Asia Limited (HVBAM) is the Collateral Manager of
the current transaction. HVBAM was established by Bayerische Hypo-und
Vereinsbank AG, Singapore Branch, in Singapore in March 2002.
HVBAM is a wholly owned subsidiary of HVB Asia Limited, which is,
in turn, a wholly owned subsidiary of Bayerische Hypo-und
Vereinsbank AG (A3/Prime-1). HVBAM specialises in the investment
management of convertible and debt securities. It has been managing
two Moody's rated Prime-1 commercial paper conduits with asset
of about US$1.3 billion, the Maximilian Capital Corporation
and Jade Capital Corporation, since the establishment of the conduits.
The notes are not registered under the Securities Act of 1933 (the Act)
under circumstances reasonably designed to preclude a distribution thereof
in violation of the Act.
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.