Fitch positive on Asia-Pacific CDO issuances

Fitch Ratings expects issuances of collateralised debt obligations (CDOs) to increase this year in Asia-Pacific, including China, the rating agency said in its latest CDO quarterly report released in May.

The agency also said that the majority of synthetic CDOs in Asia-Pacific it had rated so far were not affected by the bankruptcy of Dana Corporation in March 2006. The exception was the Beryl 2006-1 transaction, which was placed on ‘rating watch negative’ in March, but this will be resolved as and when final valuations for Dana are available, Fitch said.

On February 8, Fitch assigned a rating of AAA to Beryl Finance Series 2006-1 credit-linked notes due in 2011, issued by Beryl Finance Limited, a Cayman-based special purpose vehicle of Lehman Brothers International (Europe). The $49.7 million transaction was a funded single-tranche synthetic securitisation of a static portfolio of 97 corporate obligations, including 87 investment-grade and 10 sub-investment grade. The average rating of the portfolio is BBB+/BBB, with the largest rating concentrations in A-rated names (19.6%), A- (11.3%), BBB+ (14.4%) and BBB (13.4%). The portfolio is also heavily US weighted, with US names accounting for 56.7% of the portfolio, followed by western Europe (41.2%) and Asia (1%).

Meanwhile, Taiwanese issuance has remained high in the first quarter, due mainly to transactions arising from the island’s bond fund problem. Fitch said it expects this to continue in the second quarter with different structures coming to market.

In addition, interest in cash CDO products, particularly small and medium-size enterprise (SME) CDOs and collateralised loan obligations (CLOs), was also evident throughout the first quarter of 2006. Fitch had rated a Singaporean SME CDO – SME CreditAssist (Singapore) – in the first week of April.

More issuances of CDOs from China are also expected after the country’s first CDO, China Development Bank 2005-1 CLO, was launched at the end of 2005 after years of preparation.

“The transaction represents the first official step towards the development of a CDO market in China, and paves the way for more CDO issuances in the country this year and in the near future,” said Charles Chang, Hong Kong-based director of structured credit for Asia-Pacific at Fitch Ratings.