Jih Sun International Bank (JSIB), the commercial banking arm of Taiwan’s Jih Sun Financial Holding Company with assets of NT245.7 billion ($7.3 billion), has launched its long-awaited $118 million auto loans transaction. The deal, arranged by HypoVereinsbank (HVB) with Deutsche Bank as trustee and backup servicer, is Taiwan’s first auto loans ABS and only the country’s second cross-border offering.
When HVB was mandated in May (ASR, 5/17), the scheduled launch date was July, which got pushed back to August and finally September. However, the delay is no major setback given how long it normally takes for the Financial Supervisory Commission to give approval to transactions. A pool of 15,327 car loans with an outstanding balance of around NT$4.5 billion backs the transaction, which utilizes the Financial Asset Securitization Law. The weighted average interest rate on the loans is 7%, with average seasoning of 11.03 months.
HVB employed a structure involving an onshore trust and Cayman Island-registered SPV. At launch, the SPV – JSB Taiwan Auto One Limited – uses the proceeds of the note issuance to purchase senior trust certificates, issued by Deutsche Bank in its capacity of trustee of the JSIB Auto Loan Receivables Securitization Trust 2004. The trustee then uses the sale of the senior and subordinated trust certificates to acquire the asset pool from Jih Sun.
Credit enhancement equal to 15% of the underlying assets comes through the subordinated certificates and an offshore reserve account. In the event of certain triggers being breached – related to delinquencies, defaults, the average interest rate of the pool – any accrued excess spread will be used to supplement the liquidity shortfall.
Additionally, to hedge the currency and interest rate mismatch between the dollar denominated floating rate notes and Taiwanese-dollar fixed rate certificates, the issuer will enter into a swap with HVB and spot foreign exchange contract with Fortis Bank.
Moody’s Investor’s Service and Standard & Poor’s have rated the deal at the Aa3’/ AA-‘ sovereign ceiling, respectively. The transaction, to be priced over one-month Libor, has a legal final of five years and expected life of three years. A source with experience executing Taiwanese ABS told ASR he expected pricing of between 75 and 80 basis points. HVB was also involved in Taiwan’s first international securitization in December 2003, arranging with UBS a $230 million credit card offering for Cosmos Bank. That deal, rated Aa3’/’AA-‘ by Moody’s and S&P, respectively, priced at 93 basis points over Libor at a time of political turmoil in Taiwan.
Meanwhile, Bank Sinopac in August closed a NT$4.9 billion primary collateralised loan obligation arranged by Calyon. The two parties have already begun working on a second CLO, with completion targeted in November.
Calyon is also working on a similar deal for the International Commercial Bank of China, another Taiwanese entity, with closure expected by the end of September.
Sinopac’s recent deal was the first arranged by Calyon since Greg Park, formerly of Credit Suisse First Boston, joined the firm (see ASR, 7/26). The publicly offered transaction – BSP CLO 1 – has an expected maturity of three years and legal maturity of five years.
Split into four tranches, the issue offers spreads of between 40 basis points over the 90-day commercial paper benchmark for the double-A rated paper to 120 basis points for the triple-B minus notes.
According to the local lead underwriter, Grand Cathay Securities, the deal was two-times oversubscribed.
Moving across to Singapore, Straits Lion Asset Management and Goldman Sachs have teamed up again to complete the first Singapore-dollar denominated synthetic CDO. The two institutions in May brought to market the $1.5 billion Straits Lion CDO, one of the first to be referenced against a porfolio of predominantly Asian credits (see ASR, 5/17). Their latest effort – called Straits Lion SGD CDO 1 – is backed by a S$2.6 billion ($1.5 billion) reference pool, consisting of 105 corporate names, 59 of them from Asia.
That follows the recent trend of CDOs targeted at Asian investors. For a long time, the relative scarcity of high-rated Asian credits meant deals sold in the region would feature predominantly US and European names. By the end of last year, however, the credit default swap market in ex-Japan Asia was estimated at $20 billion, increasing the potential for Asian flavored CDOs.
The region’s synthetic CDO market has certainly prospered in the last two years, although it is also characterized by a lack of transparency. As was the case with Straits Lion and Goldman’s first offering, little information has been made public about the second. It is believed that Goldman, who structured and underwrote the deal, has bought a sizeable piece, while the triple-B rated mezzanine piece is thought to offer around 210 basis points over Libor, a similar pick-up to its predecessor.
Putting aside the difference in currency, the two deals are almost mirror images. Both feature a five-year call option on a seven-year final maturity. Straits Lion will act as portfolio manager for the duration of the deal, in which time it can actively trade credits.
Given the rapid development of Singapore’s ABS market – driven primarily through property transactions – a spin-off into synthetic offerings was only a matter of time.
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