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This presale report is based on information as of November 3, 2005. The ratings shown are preliminary. This report does not constitute a recommendation to buy, hold, or sell securities. Subsequent information may result in the assignment of final ratings that differ from the preliminary ratings.
*The rating for each class of certificates is preliminary and subject to change at any time. Issuer: Land Bank of Taiwan (Land Bank) as Trustee for the Industrial Bank of Taiwan (IBT) Corporate Loan Securitization Special Purpose Trust 2005-1 (the SPT) Issue: NT$4.32 billion senior and subordinated beneficial certificates due 2011 Expected closing date: November 15, 2005 Trustee/Back-up Servicer/Account Bank: Land Bank Trustor/Originator/Servicer: IBT Taiwan Ratings Corp. expects to assign its 'twAAA', 'twAA', ．twA・, and 'twBBB-' ratings to senior beneficial certificates of NT$3.025 billion, NT$95 million, NT$470 million, and NT$135 million, respectively, due 2011. The certificates will be issued by Land Bank in the capacity of Trustee for the SPT. The preliminary ratings address the timely payment of interest and full ultimate repayment of principal on or before the senior certificates' legal maturity date in Nov. 2011. The trust certificates are backed by a static pool of corporate loans (the loan portfolio) originated by IBT. This is the fourth Collaterized Loan Obligation (CLO) originated and arranged by IBT. The preliminary ratings are based on information as of November 3, 2005. Final ratings are subject to subsequent information provided. The preliminary ratings are based on:
IBT
was officially set up as an industrial bank in July 1999. As of the date
of the publication of this report, Taiwan Ratings・ long-term counterparty
credit rating on IBT is 'twA-', the short-term rating is 'twA-2', and
the outlook on the long-term rating is positive. At closing, IBT will entrust the loan portfolio consisting of 28 New Taiwan Dollar denominated bilateral loans to the SPT. Land Bank as the Trustee will accept the entrust afforesaid on behalf of the SPT and in turn issue two types of certificates, namely senior beneficial certificates and subordinated beneficial certificates. The senior beneficial certificates will be sold to investors by public offering and the proceeds therefrom paid to IBT. The subordinated beneficial certificates will be privately placed. Terms of the Senior and Subordinated Beneficial Certificates The senior beneficial certificate holders will receive fixed-rate coupon payment at the rate specified on the indenture. The subordinated beneficial certificates will be further divided into 3 classes with the 2 relatively senior ranked classes bearing stipulated coupon rates and the junior most class entitled to residual interest collection, if any. All 3 subordinated beneficial certificate classes, however, will be non-rated. All interest payments, regardless of whether they are senior or subordinate, will be made on a semi-annual basis. When there is any shortage with respect to senior fees and senior beneficial certificate coupon payment, firstly, the principal collection, and secondly, the cash reserve, will be used to temporarily cover this shortage. Article 41 of the Financial Asset Securitization Law stipulates that income from trust property, after deduction of costs and necessary expenses, belongs to the beneficiaries. The interest distribution, however, will be subject to withholding tax at the rate stipulated by the tax authority. Consequently, interest received by certificate holders will be net of tax withheld. Principal payments will normally be made on a pass-through basis every 6 months. Principal of subordinated beneficial certificates will only be paid after senior beneficial certificates have been fully redeemed. There will be no withholding tax on the principal payment. The asset pool will be static, i.e. neither can IBT entrust new loans to the SPT nor can any transaction party substitute any existing loans after closing date. As of the expected closing date, 28 New Taiwan Dollar denominated bilateral loans will be included in the loan portfolio. All loans will be newly originated, non-revolving, fixed-rate, and fixed-term amortizing bank loans. These newly originated loans will be fully drawn down at closing. Each loan will be an unsecured senior obligation of the obligor. The main features of the loans include:
The loan portfolio will be concentrated in a number of industries, including but not limited to, air-transport, semiconductors, building and development, and computer storage and peripherals. The obligation included in the top 5 concentrated industries will account for over 77% of the total pool size. The average loan size will be around NT$150 mil. and the weighted average coupon rate will be around 2.4%. The top 4 obligors will account for 48.61% of the total pool balance as of the closing date while the rest of the obligors will each account for less than 5% of the total pool balance. All the above mentioned features have been incorporated into Taiwan Ratings・ analysis in deciding required credit support for each rating level. As most of the obligors are not publicly rated, Taiwan Ratings has performed credit assessments on all of the unrated obligors to determine their credit quality. The results of such credit assessments along with obligor and industry concentrations, loan size, and loan maturities are then incorporated into Standard & Poor・s CDOEvaluatorTM to determine the default risk of the loan portfolio. CDOEvaluatorTM applies the Monte-Carlo methodology to integrate all abovementioned factors in determining the maximum level of defaults that a Collateralized Debt Obligation (CDO) class must be able to withstand at a given rating level. Furthermore, Taiwan Ratings has performed cash flow analysis under various stress scenarios to verify the prompt interest payment and ultimate principal repayment of the senior beneficial certificates. Commingling risk. The commingling risk is very remote with this transaction. Under normal circumstances, all obligors will be required to remit their payments directly to the trust accounts where the account bank should at all time possesses accommodated rating. When the obligors, for whatever reason, remit the payments instead to IBT, or when there is any recovery proceeds from working out the defaulted obligations, IBT should remit these proceeds to the trust account within one business day. Obligor set-off risk. The set-off risk with this transaction is mitigated by virtue of a specific waiver of the set-off rights by all obligors. The legal opinions shall opine that such waiver is legal, binding and enforceable against each obligor under current Taiwan laws. Interest rate risk. There is no interest risk with this transaction. Both the asset and the liability of the SPT have fixed interest rates. As such, the transaction is isolated from interest rate volatility. Prepayment risk. Prepayment risk for this transaction is limited. The obligors will not be allowed to prepay. Nevertheless, under certain circumstances such as obligors・ breaching of covenants or occurrence of early amortization events, the investors will be exposed to prepayment risk. The principal prepayments will be passed through to investors once the accumulated prepayment is higher than the stipulated amount. If the accumulated prepayment, however, is lower than the stipulated amount abovementioned, negative carry risk might arise. Taiwan Ratings has incorporated the negative carry risk into the cash flow analysis and sized an appropriate liquidity reserve, which will be set aside at closing, to mitigate the risk. Liquidity risk. There will be virtually no liquidity risk for this deal. The principal collection will be used to cover the interest cash flows up to the senior certificate interest payment, which is indeed a strong support considering the amortization feature of the asset pool. Also, a cash reserve has been sized to cover the liquidity risk under certain scenarios. Both features mentioned above have been incorporated into the cash flow analysis. Servicing Transition Risk IBT will act as the initial Servicer for the loan portfolio. Upon the occurrence of Servicer Termination Events, Land Bank will replace IBT as the servicer for the transaction. In addition, a liquidity reserve will be fully funded at closing to mitigate the potential liquidity risk during the servicer transition period. The transaction will be structured in accordance with the Financial Asset Securitization Law of Taiwan, which provides for the establishment of the SPT, the perfected transfer of assets from the originator to the SPT, and protection from other creditors・ and third parties・ claim. Taiwan Ratings will need to receive satisfactory legal and tax opinions prior to the closing of the transaction.
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