BSP CLO Series I

This report does not constitute a recommendation to buy, hold, or sell securities.

Rating Details

* The interest index is the 90-day secondary market commercial paper rate, which will be reset two business days prior to the beginning of each period.

Profile

Issuer: BSP CLO Series I
Closing Date: August 3rd, 2004
Final Legal Maturity Date: August 3rd, 2009
Originator/Servicer: Bank Sinopac
Trustee/Backup Servicer: Fuhwa Commercial Bank
Account Bank: Calyon, Taipei Branch
Arranger: Calyon, Taipei Branch

Rationale

The four tranches of certificates issued by BSP CLO Series I (SPT) are backed by a portfolio of 15 New Taiwan Dollar denominated corporate bank loans originated by Bank Sinopac for this particular transaction.

The ratings address the full and timely payment of interest and full repayment of principal on or before the final legal maturity date of August 3rd, 2009. The final ratings were assigned on the closing date following a satisfactory review of all documents, as well as legal and tax opinions.

The ratings are based on the following factors:

• The credit quality of the portfolio;
• The level of credit support for the different classes of certificate provided by subordinated certificates and equity;
• The establishment of a liquidity reserve;
• Sufficient cash flow to meet timely payment of interest and ultimate repayment of principal by the final legal maturity date for each class of certificate holders under various stress scenarios;
• The experience of the servicer in managing and collecting corporate loans;
• The ratings of the supporting parties such as bank account providers; and
• The bankruptcy remoteness of the SPT.

Strengths, Concerns and Mitigating Factors:

Strengths:

• The transaction structure eliminates basis risk since the interest rate on the loans and on the certificates are based upon the same interest index;
• Commingling risk is also eliminated because the borrowers are required to remit payments to the SPT bank account directly;
• Each loan will have a blank promissory note from the borrower;
• The transaction's sequential payment structure ensures that the most senior rated certificates will be repaid in full before any monies may be used to reduce the junior classes of certificates;
• In stressing the cash flows, no recoveries have been assumed on any defaulted loans, but should there be recoveries, these additional monies will be used to pay the certificate holders;
• Although all loans mature in three years, the final legal maturity of the certificates is within five years, providing a tail period of 24 months;
• A liquidity reserve will be established at closing and replenished from excess cash flows if necessary; and
• Non-amortizing credit support results in increasing amounts of credit support as the more senior tranches pay down.

Concerns:

• The small portfolio of obligors results in less diversification. In particular, the electronics/electrical industry and computer storage and peripherals industry account for 26.5% and 20.4% exposure by dollar value, respectively;
• The principal is repaid as a bullet three years from closing.

Mitigating Factors:

• Standard & Poor's CDO Evaluator assesses the probability of default on individual loan basis based on each loan's characteristic (i.e. size of the exposure, the industry and the correlations of the industry).
• The cash flow testing sequences ensures that even with expected lumpy principal repayment and assumed loan defaults, the certificates can be repaid. The servicer will implement procedures to ensure monies are collected in a timely manner.

Originator/Servicer

Bank SinoPac was established in 1992 when the Taiwan's financial industry was liberalized. The bank is a midsize commercial bank, with unconsolidated assets of NT$459.6 billion (US$13.7 billion) and net worth of NT$27.2 billion (US$812 million) at the end of March 2004. In terms of assets and net worth, the bank ranks around 15th-20th among domestic banks.

Bank SinoPac's operations are mainly based in Taiwan. The bank runs 42 domestic branches, two overseas branches in Los Angeles and Hong Kong, and one representative office in Vietnam. In addition to its overseas branches, Bank SinoPac owns US-based Far East National Bank (FENB), which has 15 banking offices in California and a representative office in Beijing.

Transaction Overview

This transaction is a bank loan primary CLO originated by Bank Sinopac. The New Taiwan Dollar denominated unsecured loans were extended to 15 Taiwan corporates in different industries. At closing, Bank Sinopac entrusted this loan portfolio to the SPT according to the Financial Asset Securitization Law. Fuhwa Bank, as the trustee on behalf of the SPT, issued four tranches of rated certificates - Senior, M-1, M-2 and M-3. The residual beneficiary certificates are unrated, and would absorb the first loss in this transaction if losses are incurred.

The trustee will receive interest payment from the underlying loans and pay interest on the certificates on a quarterly basis. The interest rates of both loans and certificates will be calculated based upon various interest spreads plus the 90-day secondary market commercial paper rate, which will be reset two business days prior to the beginning of each period. All the loans are bullet payment, as are the certificates unless there is an unscheduled prepayment of loans or excess interest diverted to redeem the certificates.

Unless previously redeemed by the trustee, the certificates will be repaid by no later than the final legal maturity date of August 3rd, 2009, 24 months after the loans in the portfolio mature. The final legal maturity provides a tail period of 24 months to ensure that any back ended losses on the portfolio can be liquidated, and the recovery proceeds from such types of defaulted loans may be available to repay the certificates.

Bank Sinopac initially services the portfolio and the trustee, Fuhwa Bank, is the back-up servicer.

Loan Portfolio

The collateral consists of a portfolio of 15 Taiwanese obligors, totaling NT$4.9 billion.

The loans are fully drawn down at closing. Each loan is the unsecured senior obligation of the borrower. The loan size ranges from NT$150 million to NT$500 million. All loans are bullet loans with maturity of 3 years. Interest will be paid quarterly.

Credit and Cashflow Analysis

Since most of the obligors do not have published ratings, Taiwan Ratings performed credit assessments on all of the unrated obligors to determine their credit quality. The expected default at different rating categories was determined by using Standard & Poor's CDO Evaluator. Using Monte-Carlo methodology, the CDO Evaluator factors the probability of individual loan default, obligor concentration and industry correlations and computes the expected level of default that a CDO tranche would be able to withstand at a given rating level.

In addition, to verify that full and timely payment of interest and ultimate repayment of principal on the certificates can be met, Taiwan Ratings performed a cash flow analysis and subjected the transaction to a variety of stress scenarios.

Structural Analysis

Interest Rate Risk/Basis Risk.

There is no basis risk in this deal, because the loans and the certificates are paid based upon the same interest index. The payment dates of the loans are matched with those of the certificates.

Prepayment Risk.

According to the terms of the loans, the borrowers are not given the option to prepay. However, should a loan be prepaid as a result of a breach of covenant, it could result in negative carry for the transaction because the proceeds when invested in cash or cash-like instruments may not earn sufficient returns to meet the issuer's liabilities. In the event of prepayment, the prepayment amounts will be released to certificate holders within three business days from the date of receipt of such monies.

Commingling Risk.

There is no commingling risk in this transaction since the borrowers are required to remit directly to SPT's account.

Set-off Risk.

As Bank Sinopac is a deposit taking institution, many of the obligors are likely to have deposits with the bank, creating a set-off risk against their relevant bank loans. Each of the loan documents contains an explicit waiver by the borrowers of their set-off right. A legal opinion confirms that such contractual waiver of rights is legal, binding and enforceable, and that borrowers can not exercise set-off rights.

Servicer Transition Risk.

Servicer transition risk was sized to meet liquidity needs of the transaction. The servicer may not resign within 30 days prior to any payment date. This is to reduce further disruptions on the transaction. Additionally, in the event of a servicer termination, the trustee will act as the back-up servicer.

Legal and Tax Analysis

The transaction is structured in accordance with Taiwan's Financial Asset Securitization Law. The law requires the trustee to withhold 6% on interest income paid to certificate holders for tax purposes. Therefore, certificate holders will receive their coupon, net of the required taxes.

Prior to assigning the final ratings and the closing of the transaction, Taiwan Ratings Corporation received satisfactory legal and tax opinions.