Lloyds TSB sold its first securitization of corporate loans last week, a first step in its strategy to use complex derivatives to shift risk off its balance sheet, the bank said.

The GBP1 billion ($1.9 billion) CDO is a synthetic, fully unfunded credit default swap (CDS) transaction, structured with six rated tranches. Moody's Investors Service rated roughly 87% of the vehicle - dubbed Ascot Black CLO - Aaa'. The remainder comprises four subordinated tranches, the most subordinated of which is rated Ba2' by Moody's. Each CDS benefits from the subordination of the respective lower tranches and a synthetic excess spread feature that provides additional credit enhancement to the rated credit default swaps. The bank retains a small first loss position, which features a synthetic spread construction.

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