Lloyds TSB Bank and the Bank of Scotland issued a £1.45 billion ($2.35 billion) CLO of project finance loans.
The deal's capital structure comprises three triple-A tranches rated by Standard & Poor's and Fitch Ratings. Classes A1, A2 and A3 are each expected to be split into ‘a’ and ‘b’ sub tranches at closing. The offering, which is expected to close on March 31, will also include on single-A rated B class note.
The portfolio comprises U.K. Private Finance Initiative (PFI) loans and, as a result, the ratings on the deal are linked to U.K.'s sovereign rating.
The transaction's ratings, Fitch said in a presale report, are therefore exposed to a downgrade of U.K.'s sovereign rating as well as the public sector entities defaulting.
The rated notes are robust against default rates of up to 49% for class A and 39% for class B. However, the rating agency added that the inability of the transaction to use principal proceeds to pay interest on the senior class exposes the class A notes to timely interest shortfalls, and therefore an event of default in exceptionally high-default scenarios.
"The transaction does not benefit from sufficient amounts of excess spread to mitigate the negative carry under severe default stresses and relies instead on reserve accounts," according to Fitch's presale report.
For further preliminary information on the deal, please look at the link below from ASR Scorecards database.