Stuttering SBLC-backed bonds are here to stay

By Rev Hui
30 Oct 2014

A muted response to recent Asian bond issues backed by standby letters of credit (SBLCs), including deals from Hebei Iron and Steel and from Tewoo Group, have sparked suggestions that credit enhancements are losing their shine because of concentration risk. But the bulls are adamant that the structure is merely going through a rough patch and is here to stay, writes Rev Hui.

Investors have typically been receptive to credit enhanced transactions because of the attractive valuations they offer. Even though the bonds effectively give buyers exposure to the risk of the SBLC provider, usually a bank, they mostly come with a juicy 40bp-50bp pick-up over the provider's comparable senior bonds.


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