Taiwan CBO with PPN
Joice Shih
Director
Global Securitized Market, Asia-Pacific
Citigroup
July 14, 2006
Typical NTD/USD Hybrid CBO Structure in Taiwan
Taiwan NTD/USD Hybrid CBO Structure
Offshore
Onshore
NTD Structure
Bonds
50%
Originator
NTD+USD
Asset Pool
USD Assets
§
§
§
§
Agency Callable
PPN
Synthetic CDO
RMBS
SPT
CDO
Investors
Swap
50%
Swap Bank
Background for NTD/USD Hybrid CBO
 Huge local currency liquidity
 Limited local currency investment opportunities especially for structured product
 Restriction on foreign investment for insurance companies
 Very tight credit spread v.s. rating (tighter than equivalent rating USD asset)
Why PPN
 CBO Structure Puzzle….
– Purpose of CBO
– Nature of NTD asset
– Balance of yield, risk and volatility
Low Credit Risk
NTD Structured Bond
50%
Low Yield
Higher Yield
Unfamiliar
Credit Risk
USD Asset
50%
Why PPN
 When CBO meets Investors….
NTD Structured
Bond 50%
Low Credit Risk
Plain Vanilla
• low credit risk
• simple payoff
• low volatility
• shorter duration
Low Yield
Higher Yield
Unfamiliar
Credit Risk
USD Asset
50%
Exotic
• higher credit risk
• structured payoff
• higher volatility
• longer duration
Why PPN
 PPN matches the needs
– What is PPN?
– How PPN helps?
$100
NTD
Structured Bond
Plain Vanilla
• low credit risk
• simple payoff
• low volatility
• shorter duration
NTD
Structured Bond
Match Better
$100
High rating
Zero
(70%)
Principal
protection
$100
High yield product
(30%)
?
De-leverage to reduce the volatility
Exotic
• higher credit risk
• structured payoff
• higher volatility
• longer duration
What is Achieved and What to Expect
 Good demand with over subscription.
 The largest deal in Taiwan securitization market (NT$18.4bn).
 The only deal using Cash CDO/CLO as underlying collateral.
 Import structuring know-how to Taiwan market from different global product teams e.g.
CDO, MTN, derivatives etc.
 Demand or repeating structure or similar local fixed income product.
…….Thank You