Lehman Brothers has advanced the development of Thailand's securitization market a notch further with the issue of the first publicly rated mortgage backed (MBS) deal from the country. SG Securities was brought in to act as underwriter on the Bt7.17 billion ($177 million) transaction, which is divided into Bt4.67 billion of bonds and a Bt2.5 billion structured loan.
The deal will be backed by the cash flows generated from two loan portfolios acquired from the Financial Restructuring Agency in 1998 and DBS Thai Danu Bank in 2000 by Global Thai Property Fund - a Lehman subsidiary รป and Palarp Asset Management Company.
Of the 14,818 loans that will collateralize the deal, 81% are non-performing, 16% restructured and 3% are performing. The total unpaid principal of the underlying pool is Bt19.3 billion, which has a net asset value of 14.9 billion. Lehman Capital Advisory Services, Siam Commercial Bank and Premier LMS will be responsible for servicing the loans.
Fitch has assigned an expected local long-term rating of A for the bonds, which will be issued out of the GT Stars 2 special purpose vehicle. These have a legal maturity of five years, expected average lives of three years and will pay investors a floating rate of 2.15% below the Thai minimum lending rate, currently standing at 7.1%.
The pricing compares favorably to Lehman's first Thai MBS deal, a Bt4 billion offering launched through the GT Stars 1 SPV in 1999. That deal, unrated and placed privately, had a legal maturity of seven years and offered a coupon of 2.15%. Due to the strength of the cash flows, the bond was paid off in 17 months.
Carlos Manalac, managing director of the global structured finance group at Lehman says the success of the first transaction played a major part in getting tighter pricing this time around.
"The better pricing achieved on the second deal reflects the good experience investors had with Stars 1, the strong history established with the portfolio and the Fitch rating," he explains. "The first deal was three times oversubscribed and Stars 2 was 3.5 times oversubscribed. We believe that in Thailand, as well as the rest of Asia, there is very good appetite for deals of this nature. However, because these are innovative structures supported by complex assets, the market will discriminate between good and bad deals."
