Six CDO Tranches Under S&P's Creditwatch

Source : The Business Times, October 26, 2007

The tranches, linked to UOB and OCBC and listed on Irish bourse, are worth US$97m

RATING agency Standard & Poor's has placed six tranches of collateralised debt obligations (CDOs) launched by the asset management arms of United Overseas Bank (UOB) and OCBC Bank under negative watch.

A negative watch is not a downgrade, which has an impact on pricing.

CDOs are currently either so thinly traded, or not traded at all, that it is difficult to gauge their prices.

In a press release, Standard & Poor's said it has placed its ratings on the six tranches of Asia-Pacific CDOs on creditwatch with negative implications. The CDOs are listed on the Irish Stock Exchange.

According to the Irish Stock Exchange website, the six tranches are worth US$97 million. Four of the six tranches, worth US$57 million, belong to Raffles Place II Funding Ltd, a US$1 billion asset-backed securities CDO comprising many tranches launched by UOB Asset Management last year.

Responding to a BT query on whether the rating action will have any impact, a UOB spokeswoman said the bank has taken note of the latest announcement by Standard & Poor's.

'In any case, we constantly review our investment portfolio on our own and will make any necessary adjustment when required,' she said.

The other two CDO tranches worth US$40 million that were placed on creditwatch belong to Singa Funding Ltd, which was also launched last year by Lion Capital, which is 70 per cent owned by Great Eastern Holdings (GEH) and 30 per cent owned by OCBC Bank.

GEH is, in turn, 87 per cent owned by OCBC.

According to a Nomura Fixed Income Research CDO update in June 2006, Lion Capital launched Singa Funding Ltd, a US$1 billion residential mortgage-backed securities (RMBS)/ CDO.

A GEH spokeswoman yesterday said the company could not comment on the rating action because of the blackout period ahead of GEH's release of third-quarter 2007 financial results on Nov 2.

Yesterday, Standard & Poor's said the six Asia-Pacific tranches are CDOs of asset-backed securities collateralised by structured finance securities, including RMBS.

'Standard & Poor's placed these CDO ratings on creditwatch negative following a review of its rated cash-flow transactions with exposure to RMBS securities that have experienced negative rating actions recently - which included the more than 3,500 classes that were downgraded during the week of Oct 15, 2007,' it said.

In total, the six CDO tranches placed on creditwatch negative account for about 17 per cent of the Asia-Pacific cashflow CDO tranches currently rated by Standard & Poor's.

In August, when UOB and OCBC disclosed their CDO exposures, both banks said the CDOs managed by their respective asset management arms to date were performing and there were no rating downgrades by ratings agencies.