In November 2007 mandated lead arranger Standard Chartered Bank (SCB) closed a US$3bn balance sheet synthetic securitisation of trade finance loans. The transaction, known as Sealane, wins the accolade of being the largest cross-border securitisation deal in Asia to date.
Paul Hare, managing director, portfolio management, at Standard Chartered, adds: “‘Sealane is a genuine ‘market first’. It is the first synthetic securitisation of trade finance assets.”
Tan Kah Chye, global head of trade finance at SCB comments: “We are delighted to see our commitment to innovation in trade finance acknowledged by GTR.”
The structure of the deal follows that of SCB’s already established collateralised loan obligation (CLO) programme known as Start CLO. Previous transactions completed under this programme involved securitisations of unsecured loan portfolios, with the first signed under this initiative in November 2005. Each deal is a standalone transaction, but using the same structure. However, this deal is the first time this structure has been extended to trade finance loans.
In structuring the transaction, SCB applied asset-backed securities (ABS) technology to this brand new asset class, using synthetic technology to transfer credit risk in a partially funded format. The facility incorporates 13,000 trade finance assets with an average life of less than 90 days.
During the syndication of the facility, the credit risk of the assets was extended to over 1,500 borrowers across 23 countries. The pool of obligors features almost 80% Asian exposure, of which over 50% were from high growth local corporate sector.
Talking through the structure of the deal, Hare comments: “For Sealane, we developed a hybrid CLO/ABS structure. We feel this gave investors the full benefit of the granularity and short-term nature of the asset class. This was a key factor in getting the transaction away in extremely tough market conditions.”
The short-term assets allowed the investors to take a rolling 90-day view on the markets, despite the actual transaction carrying a 3.5-year tenor. This gave them extra comfort in the security of their investment and it helped win over those who had become more hesitant about making long-term investments.
The deal proved so attractive it was ultimately upsized from US$2bn to US$3bn, attracting close to 20 investors.
SCB’s principal motivation behind Sealane is to create further capacity for its trade finance portfolio, the bank can now also continue to build upon its trade finance business, a division of the bank that has seen unprecedented growth in recent years.
Tan remarks: “Sealane is strategically important for the development of our trade finance franchise. The growth in our trade finance business has been phenomenal in recent years. 2007 was a watershed year as for the first time in history our assets and contingent grew by more than 50%.
“Sealane was there to make this happen. Innovative distribution channels are fundamental to creating capacity for further growth and better serving our clients.”
Sealane (Trade Finance) – incorporated in Cayman Islands
Co-arrangers: Standard Chartered; Lehman Brothers
Replenishment period: 3 years
Scheduled maturity: 3.5 years