All Asia CBO Limited has launched $45 million collateralized bond obligation (CBO) via arranger Credit Lyonnais. All Asia, a Cayman Islands special purpose company, will use the bonds to buy 23 US dollar denominated fixed-rate bonds worth $45 million.

The bond portfolio is from Korea (22%), Thailand (18%), Philippines (13%), Malaysia (13%), India (11%), Hong Kong (9%), Singapore (7%) and China (7%). Average bond size in the portfolio is $1.96 million, (4.35 4.3% of the total portfolio). About 16% of the bonds are sovereigns.

Interest collections from the underlying bonds will be used to pay senior bondholders. All Asia will enter into an interest rate swap with Credit Lyonnais, to cover the disparity of the fixed-rate collateral and floating-rate bonds. The swap will be done under a derivatives program guaranteed by CLFG Corp, which is owned by Financial Securities Assurance. Moody's and Fitch rated the bonds, and the lower tranche provides 30% subordination for the senior notes.

Subordinated note holders have a put option at the end of the fifth anniversary. It allows the subordinated notes to be paid in part or in whole, and also triggers the call of the same proportion of the senior notes, to maintain credit quality. Before the put option can be exercised, the following criteria must also be met:

There must be no deterioration of the coverage test ratios, diversity and weighted average credit quality after such redemption; and

No extension of the weighted average life and maturity after redemption.

The put option is an unusual feature on an Asian CBO. "It is a sort of incentive given to subordinate note holders, giving them the option to get out of the deal with simultaneous redemption of senior notes," said Amit Agarwala at Fitch in Hong Kong. "Also, the covenants are structured to ensure that the senior noteholders interests are not impacted in such a scenario."

The investment manager is OUB Asset Management, a wholly owned subsidiary of Overseas Union Bank, a Singapore-based commercial Bank. - ISR

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