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Derivatives

Lloyds TSB Steps Into European CLO Market

Lloyds TSB has completed its first collateralized loan obligation, a GBP1 billion (USD1.89 billion) synthetic unfunded balance sheet transaction.

Lloyds TSB has completed its first collateralized loan obligation, a GBP1 billion (USD1.89 billion) synthetic unfunded balance sheet transaction. The transaction is part of the U.K.-based bank's efforts to move toward an origination and distribution framework, said Monica de Vries, a director in the structured credit group in London.

The CLO is being completed alongside Lloyd's new RMBS platform Arkle. "The bank has not used securitization as a tool before," de Vries said. "These two are Lloyds' first efforts to securitize our own assets, so it signals a strategic shift."

The deal, Ascott Black, is comprised of small- to medium-sized enterprise loans and has a 29.99% exposure to the real estate sector. It includes six tranched credit-default swaps. Each tranche benefits from the subordination of the respective lower tranche. The deal also includes a synthetic excess spread feature to provide additional credit enhancement.

The deal is expected to be placed with a limited number of institutional cash parties, de Vries said. "Many SME CLOs come with a fully funded issuance of bonds. This way is different, and less costly, and more efficient."

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