As collateralized loan obligations continue to gain prominence, Chase Manhattan Bank, lead division of Chase Manhattan Corp., recently did a $1 billion securitization of bank loans through its Chase Loan Obligations USA Trust 2000-1 (Clout), and is looking to do similar deals in the future.
"They are always looking for ways to capitalize the business more efficiently and to gain economic capital relief," said a source familiar with the transaction. "There are no hard and fast plans yet, but they are always looking for opportunities. That means they would definitely consider another deal," added the source.
The first part of the double-tranched offering was rated AAA by Standard & Poor's Ratings Service, Moody's Investors Service and Fitch IBCA. The average lives ranged from 3.56 years to 4.35 years.
In a related transaction, Chase also bought $52.5 million of first-loss protection on the same portfolio through the Leveraged Asset Note for Credit Exposure Series 1999-1 and 1999-2 Trusts (Lance 1 and Lance 2).
"The Lance deal sold off the first-loss risk in the transaction through a credit default swap," said another source.
Additionally, the Clout deal offered the company other advantages as well: "Through Clout, we sold off the senior-most pieces in the transaction. This enabled us to get the whole transaction off Chase's balance sheets. By doing the two transactions in conjunction with one another, we got full economic and regulatory relief and got the assets off our balance sheets at the same time," noted the source.
While most off-the-balance-sheet CLOs that have been done to date have utilized a master trust, the source said this transaction was somewhat unique because it utilized an owner trust instead.
"The master trust structure has been adapted in a lot of transactions for bank portfolio CLOs because what you can do is you can put revolving credit facility accounts in and then when those facilities get drawn, they automatically go into the deal, " explained the source.
In an owner trust, however, the assets are only replaced when they arepayed off. "The advantage with an owner trust is that every time an asset enters the trust, it gets tested as to whether the asset has all the portfolio parameters required to go into the deal," the source added.