Australia a hotbed for CLN issuance

Credit-linked notes (CLN) issuance has soared in Australia this year, with the volume of rated notes exceeding A$1.2 billion ($881.3 million) year-to-date, compared with A$240 million in 2002, according to Mei Lee Da Silva, credit analyst in Standard and Poor’s in Melbourne. Da Silva believes strong demand for the product will continue into 2004.

“There has been a total of 40 series issued out of 10 CLN programmes, comprising seven single-name, three first-to-default baskets of two to 10 names, and 30 portfolios of over 10 names," said Da Silva. "We expect to see more of these types of notes being issued next year, with investors’ appetite remaining strong,” she added.

The most recent issue comes from Shield, a repackaging vehicle established by the Commonwealth Bank of Australia. The vehicle issued A$60 million of Series 18, A$10 million of Series 19, and A$100 million of Series 20 portfolio CLNs rated AA, A and AA, respectively, by Standard and Poor’s. Noteholders effectively buy credit risk on the same notional portfolio of 100 equally weighted corporates and financial institutions.

“This is the third round of rated portfolio CLNs issued by Shield, with the first round of four series issued six months ago and the second round of five series issued three months ago,” said Da Silva. Shield has also issued three rated series of repackaged notes, two rated series of single-name CLNs, and one rated series of first-to-default baskets since March.

Da Silva noted that two to three smaller programmes of portfolio CLNs – at around A$30-50 million each - are also expected to be issued by the end of the year, although she declined to comment on the issuers.