UBS Limited and HVB Singapore structured and brought to market the first cross-border transaction from Taiwan. The deal G&M Finance Limited issued a US$230 million bond rated Aa3' by Moody's Investors Service and AA-' from Standard & Poor's. It securitizes a portfolio of Taiwan dollar-denominated cash card loans originated by Cosmos Bank, a Taiwanese bank, marking the bank's first securitization foray.

"The prospects look pretty good for the issuance market in Taiwan," said a source at one of the rating agencies. "We expect quite a bit of activity in CBOs as well as RMBS. In addition we know that market players are also looking at the possibility for CMBS transactions."

The transaction structure involves the portfolio of Taiwanese dollars being funded by U.S. dollars. This is done by selling the receivables to the receivables trustee, which will then issue four types of certificates denominated in Taiwan dollars. According to S&P, these include investor certificates; excess spread rights certificates (ESRs); seller certificates; and subordinated seller certificates.

The investor certificates are then sold to G&M Finance Ltd., the SPV, which then issues the U.S. dollar-denominated notes. The Taiwanese dollar and U.S. dollar currency and interest rate swap is provided by UBS AG, acting as the swap counterparty, through its Taipei branch. Deutsche Bank AG (also the Taipei branch) acts as both the receivables trustee and backup servicer. Cosmos, the issuer, will act as servicer. S&P commented that the rating on the deal is also weak-linked to the rating on the counterparty of UBS.

The ESRs represent a new feature in Taiwan, and it is expected that these notes will be placed privately in Taiwan. According to S&P, the ESRs constitute mezzanine debt, which monetizes excess spread, and which in turn may be generated by the portfolio of receivables. The ESRs rank junior to the notes, and Moody's has assigned a rating of A1.tw'to the NT$190 million (US$5.57 million) certificates. One rating agency analyst commented that the benefit of these ESRs is to help with the balance-sheet management of the originator.

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