Standard Chartered Bank (SCB) last week launched the third synthetic CLO from its Cayman Islands-registered Start SPV. SCB, listed in Hong Kong and London, is joint arranger on the $1.5 billion deal with Lehman Brothers. The two parties worked together on Start II, a $1.6 billion transaction completed in June.

The latest offering will see SCB sell the credit risk on a pool of 498 corporate loans extended to 359 credits. One noticeable feature of the deal is the higher concentration of Asian names than in SCB's two earlier efforts. Around 81% of the borrowers are from Asia, while 18.3% are from the Middle East. The three biggest industry concentrations are banking and finance, metals and mining and transportation.

According to Moody's Investors Service, the weighted average rating of the pool is Ba2'. One of the primary purposes of SCB's CLO program is to move illiquid, lower rated risk off its balance sheet, freeing up space to originate new loans.

The deal is split into seven tranches, including an unrated $1.2 billion super senior piece. All the tranches have a scheduled maturity date of May 2010 and legal final of May 2011.

Of the publicly offered part of the deal, Fitch Ratings, Moody's and Standard & Poor's provisionally assigned triple-A ratings to the $56.25 million A-class notes, while the $41.25 B-paper is rated AAA'/Aa1'/AA'.

The deal also features an A+'/A1'/A' minus-rated $22.5 million C-tranche; $37.5 million of BBB+'/Baa1'/BBB' rated D-paper and $30 million of E notes, rated BB+'/Ba1'/BB'.

In addition, the transaction includes a $93.75 million unrated equity piece, equivalent to 7% of the deal. According to one investor, SCB will retain the bottom 1%, but the next 6% has already been sold to hedge funds at a nominal yield of 17%.

"This is a groundbreaking deal and you have to say well done to the leads for selling the entire equity piece," the investor said. "We are talking about selling off risk that's not even double-B plus. This makes a lot of sense as a capital management play and shows what can be done as long as you price the equity tranche sensibly."

Attention will now focus on pricing of the rated bonds.

(c) 2006 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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