This is the third deal in the Start series of CLOs but is the first to accurately match the geographic spread and risk profile of StanChartÆs corporate loan book, which is to say that it features mostly unrated, unlisted, Asian borrowers.
The portfolio comprises 520 loans to 374 companies, with roughly 60% from Northeast Asia, 10% from South Asia, 10% from Southeast Asia and 20% from the Middle East, which is almost identical to the actual spread of StanChartÆs corporate loan portfolio. Almost two-thirds of the borrowers are unlisted.
The CLO is divided into five rated tranches, all with a five-year tenor, and priced at the tight end of expectations.
The $56.25 million triple-A rated (Fitch, MoodyÆs and Standard & PoorÆs) Class-A tranche priced at 28bps over Libor. The $41.25 million Class-B tranche (AA/Aa1/AAA) priced at 39bps. The $22.5 million Class-C tranche (A-/A1/A+) priced at 70bps. The $37.5 million Class-D tranche (BBB/Baa1/BBB+) priced at 175bps and the $30 million Class-E tranche (BB/Ba1/BB+) priced at 39bps.
There are also two unrated tranches: $1.2 billion worth of super senior notes and a $93.75 million equity piece, which is key to getting balance sheet relief under the Basel II capital adequacy rules. Under Basel I, banks could keep hold of the equity portion and still gain protection, even though they hadnÆt actually transferred the most risky loans. Under Basel II, banks will need to offload the lot, which is no mean feat.
Although the underwriters are not disclosing the pricing on the equity piece it is reckoned to yield in the region of 17% over Libor and has been sold to hedge funds.
This represents a further tightening of the pricing the underwriters achieved on the second Start CLO and sets the standard for Asian Basel II-driven balance sheet deals.
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