Shinsei Securities Co. Ltd is setting new disclosure standards for the Japanese market with its 1.437 trillion (U.S. $11.8 billion) collateralized loan obligation (CLO), which is expected to close next month. Not only is this deal said to go further than any other in Japan's market history in regard to the level of disclosure, but it is also the first public CLO to employ the recently established idea of a master trust.

Shinsei Funding One Special Purpose Co. features a master trust, Shinsei Bank Master Trust, which was established under the securitization laws of Japan. The issuer for the master trust is a Japanese version of a special-purpose corporation, called a TMK. The collateral pool will include approximately 2,304 loans to 613 borrowers.

The deal is intended to be a long-term source of funding for the company and it is backed by a pool of loans, a substantial majority of Shinsei Bank Ltd's investment-grade performing loans, from large to mid-size companies and municipals in Japan. Nikko Salomon Smith Barney of Tokyo is leading the transaction.

Both the A-Class, which totals 60 billion and the B-class, which totals 40 billion, received preliminary triple-A ratings from Standard and Poor's, Moody's Investors Service and Fitch. Both classes will be yen-denominated in order to avoid currency risk.

The transaction includes several provisions that will essentially cleanse the master trust over time so that if an individual loan is downgraded below a certain point, it will have no value. "It's like a borrowing base," said one market participant. "It has no value and it doesn't get put back to Shinsei, but at some point you could trigger a pay-out of the deal."

Unlike other offerings that have gone before in the Japanese market, sources are astounded by the level of disclosure in this transaction. "Shinsei will pose a challenge to other Japanese banks by raising the disclosure standard for their portfolio," the market participant said. "There has never been a lot of transparency in bank's portfolios there, so it sets a new level of transparency."

Shinsei plans to include monthly data on Citibank's (the trustee) Web site. "It will challenge the other [Japanese] banks because they will see that Shinsei is disclosing all this information and people will believe that Shinsei's portfolio looks better than the others because they are not rolling over bad loans, " the source added. "What does that say about other banks who keep saying that their portfolio's are okay, yet side by side with Shinsei's portfolio they'll look kind of odd?"

Furthermore, the offering circular for the deal included a select portion of information regarding the master trust, and it is broken down by rating category, individual-loans rate mapped to S&P, Moody's and Fitch equivalent ratings, as well as by industry groups, geography, size, interest rate and tenor.

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