Last week Polaris Securities became the latest Taiwanese entity to complete a collateralized bond obligation. As with the previous issues, Polaris' NT$12.2 billion ($376.8 million) deal was an attempt to address the drop in value of structured bonds in Taiwan that has hit bond funds in the last 18 months (ASR, 10/31/05).
Polaris acted as sole arranger and jointly originated the underlying pool with Bank of Overseas Chinese. Standard Chartered was brought in as financial advisor and lead manager.
The deal is backed by 19 domestic currency structured notes and nine fixed rate bonds, combined with a single-A rated $150 million U.S. CBO referenced to the Dow Jones CDX NA IG index, a first for the market.
As with most of the other Taiwanese bonds, the U.S. CBO was structured in to enhance yield and increase the attractiveness of the deal to local investors.
The transaction was split into five classes of rated trust certificates. The NT$7.15 billion A1 notes - rated AAA by Taiwan Ratings Corp. - offer a 2.08% coupon over a 2.43-year expected average life. Additionally, the NT$1.785 billion of 4.83-year triple-A paper pays 2.30%.
The NT$1.08 billion double-A rated B-class certificates finished at 2.32% for 4.83-years, while the single-A and triple-B tranches respectively offered coupons of 2.35% and 2.45% over the same expected average life.
Two unrated subordinated tranches totaling NT$600 million were also structured into the deal, for which pricing details were not available.
According to a well placed source, pricing was in line with previous Taiwanese offerings, equating to a spread of between 18 to 20 basis points over the commercial paper index. The source added that the referencing of the U.S. component to the Dow Jones index attracted investors.
"The CBO falls within the Dow Jones investment grade trading band of between 3% to 7%," he said. "The main benefit was to increase transparency and liquidity, something local investors are looking for. On this deal, they can actually find out the pricing of the US CBO - it is easily available - but there is less transparency on the previous bespoke deals."
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