Japan's UFJ Bank to issue synthetic CLO in March

Japan’s UFJ Bank is preparing to launch a balance sheet synthetic collateralised loan obligation (CLO) referenced to a pool of loans extended by UFJ Bank to Japanese small and medium sized companies, worth ¥1 trillion ($8.4 billion). The synthetic CLO, which was arranged by UFJ Tsubasa Securities and Merrill Lynch Japan Securities, is expected to be issued in March.

As part of the transaction, special purpose vehicle Ruby Capital One will issue four classes of credit-linked notes and a super senior credit default swap maturing in December 2005. The ¥840 billion super senior tranche has received a prospective rating of Aaa from Moody’s Investors Service. The ¥87 billion of Class A notes are rated Aaa, the ¥19 billion of Class B notes are rated Aa2, the ¥11 billion of Class C notes are rated A1, and the ¥20 billion of Class D notes are rated Baa3.

The deal is the latest in a series of Japanese synthetic balance sheet deals in the last few months, as the country's ailing banks looks to shore up dwindling capital levels ahead of the March fiscal year-end. Last September, Mizuho Corporate Bank launched a ¥1.265 trillion synthetic balance sheet CLO, while Sumitomo Mitsui Banking Corporation followed suit in December with a ¥500 billion deal.