UBS Warburg recently brought to market the first synthetic collateralized loan obligation to come out of Switzerland. Called HAT - or Helvetic Asset Trust - the SFr350 million ($212 million) transaction securitizes part of the credit risk attached to a portfolio of loans originated by UBS to small- and medium-sized businesses in Switzerland.

Under the terms of the deal, the SPV enters into a credit default swap with UBS to cover any unexpected losses on the loans. Effectively, what goes into the SPV is not a transfer of credit but the loan loss risked. All the loans - which include fixed advances, current account overdrafts and corporate loans - will remain with the bank.

Revenues from the bonds issued by HAT will be invested in triple-A rated state guaranteed notes issued by Oesterreichische Kontrollbank.

The deal was split into two fixed-rate tranches, both of which have five-year maturities. The Sfr250 million A tranche, rated Aa1 by Moody's Investors Service, pay a 4.625% coupon. The subordinated Sfr100 million B notes pay a 6.75% coupon and were rated Baa3 by Moody's.

Credit enhancement for the deal is provided by the subordination. In the event of losses in the underlying portfolio being between SFr125 million and Sfr225 million, the class A notes will be redeemed at 100% and the B notes will only be partially redeemed. Any losses above Sfr225 million will mean the B notes will not be redeemed at all and losses exceeding Sfr475 million will affect the A notes in the same way.

Helmuth Aberer, head of the UBS structuring secondary market activities team in Zurich, said that the deal had been entirely marketed to Swiss investors and that he was pleased with their response. "There was a surprisingly strong level of interest among investors," he said. "The reason we marketed domestically is because the Swiss capital market has a withholding tax. International investors do not like to invest because of this tax."

Aberer said that the notes, which under Swiss law will be officially listed on August 2, were being placed with banks, pension funds and other institutional investors. He added that the Swiss-based operations of UBS would consider further deals if the economic situation was right, but it was unlikely to be a frequent issuer. For this deal, the bank is taking advantage of the current improvement in the Swiss economy and the resultant decrease in loan defaults.

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