Asia Pulp & Paper recently issued its second trade receivables securitization in the last year to confirm the reemergence of Indonesia on to the world securitization stage.

The deal, which was arranged by ING Barings and worth $125 million, was rated AA/Aa3 by Standard & Poor's and Moody's Investors Service thanks to a wrap from Bermuda-based multiline insurer, Centre Solutions.

The private placement, with a 2005 maturity, comes via a Cayman Islands SPV called Pioneer Export Funding and is backed by a mixture of existing assets and future flows.

Centre's wrap comes in the form of a surety bond which, according to the multilines' Bryan Bowers, irrevocably guarantees payment on a timely basis. "It looks like a monoline wrap, in that it covers all the risks, but we are not a monoline insurer," he said.

In fact, it is because Centre is not a monoline that allows it to get involved in the deal, as monolines usually have guidelines which mean that they cannot guarantee deals with underlying ratings below investment grade.

Fortunately for APP, this doesn't apply to Centre. APP is headquarted in Singapore, but because the majority of its operations are in Indonesia, it is rated by S&P at the Indonesian sovereign ceiling of CCC-plus. Bowers said that this means that Centre were able to make a judgment that APP were an excellent company constrained by Indonesia's weak sovereign rating.

"We like the company for a lot of reasons," he said. "They are listed on the New York Stock Exchange, which means that their accounting is world class; they have very good control of the assets; and they sell their products to a highly diversified customer base."

The basic risk in the deal, he added, is the possibility that Indonesia itself might collapse and APP would be prevented from exporting. "We believe that that risk is quantifiable and that is what we are getting paid to insure against."

The existing asset component of the deal is made up mostly of exports invoiced in hard currencies, though there is a small proportion sold to Chinese firms and backed by letters of credit from well-rated Chinese banks. Bowers declined to be precise about the split between existing and future assets and noted that the ratio changed constantly during the course of the deal, as more product is sold at some times compared to others. This also means that Centre's compensation varies, as it gets paid more when the percentage of higher-risk future flow goes up and less when it goes down.

This transaction is the second time that APP have been in the securitization market over the last year. Towards the end of 1999, it sold a deal for the same amount, using the same structure and with the same parties involved.

Both ING and APP declined to discuss the deal.

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.