Affin Bank, using Nomura Advisory Services as technical advisor, recently closed Malaysia's largest domestic securitization to date with a M$1 billion ($263.1 million) primary collateralised loan obligation (CLO).
Bankers involved on the transaction claim that it is the first CLO globally to securitize a portfolio of new loans.
The transaction is backed by loans of between M$25 million to M$45 million originated by Affin to 25 listed companies, offering them the chance to tap capital market investors rather than depend purely on commercial loans. The companies come from 16 industry sectors with ratings ranging from BBB to AAA.
Nomura, which does not have a licence to sell securities in Malaysia, was brought in by Affin to help design the structure for the deal. Essentially, Affin sells the loans to a special purpose vehicle - called Aegis One Bhd - which repackages the loans into M$900 million of senior notes - rated AAA by Malaysian Rating Corp - and M$100 million of unrated subordinated bonds. Both tranches have five-year bullet maturities, with repayment on a semi-annual basis.
The senior bonds carry a fixed rate coupon of 5.2%, a significant pick-up on the current 3.995% average pick-up for triple-A rated five-year corporate bonds, as calculated by Bank Negara. The subordinated notes were priced on more of an equity basis, with the coupon depending on the credit rating of the underlying companies.
A banker close to the deal says that both tranches were fully placed, with interest mainly coming from banks and fund managers. He added that the generous yields were essential to the success of the deal, given that there have been so few securitizations seen in Malaysia.
"5.2% is a very high yield for triple-A paper in the local market, while investors can also get double digit returns on the sub piece," the banker says. "It is important in new transactions to give investors this kind of premium - otherwise they won't see the comparable value. You can think about pricing tighter once investors have seen two or three deals and got used to the structure. But what I do think is important to emphasize here is that this was a big deal for the domestic market, which highlights that the appetite for securitization is there if the yields are."
The banker adds that this transaction differs from what has gone before by being specific about the obligors. "Basically, we went around getting feedback from investors on what they didn't like about the previous deals," he says. "One thing that they did not want to see was the kind of black box guidelines where all investors knew about the deal was a general outline about the structure, but no specific details about the obligors. This transaction is 100% transparent - the 25 borrowers are named up front and investors can go to the deal trustee at any time to see exactly what is in the pool."
That is different from one of the other Malaysian CLOs, the M$310 deal launched in November 2001 by Danaharta, the state-owned asset management company. Danaharta's deal, arranged by Deutsche and issued through the Securita ABS One SPV, was backed by a portfolio of rehabilitated loans, over half of which were property-related.
The triple-A rated five-year offering received criticism in some quarters for not giving enough details about the property loans included. Some investors shied away from the deal, as it was felt the 4% coupon was not generous enough compensation for the lack of information on the underlying portfolio.
