MUFG opts for static pool in new CRT

MUFG Bank has executed a five-year synthetic securitisation that references a static US$1.7bn portfolio of US, European and Asian corporate loans. Dubbed Monolith three, the transaction differs from last year’s Monolith two given the shift from a revolving to a static portfolio.

The transaction features a 0%-7% first loss tranche thickness and a 7%-26% mezzanine thickness. The tranches amortize on a pro-rata basis with triggers to sequential amortization and there are no time calls. The mezzanine tranche is unusually thick for synthetic risk transfer trades, but this is explained by the fact that MUFG is already factoring in the Basel output floor into the trades. Consequently, the thickness of the mezzanine tranche had to be adjusted to reach the 15% floor for the retained senior tranche.

Under the output floor, a bank using internal models must now calculate RWAs using the standardised approach and then multiply the amount obtained by 72.5%. Effectively, this may lead to higher risk weights for the retained senior tranches of synthetic securitisations (SCI 22 November 2022).

Kenji Matsumoto, director, credit portfolio management at MUFG comments: ‘’We received a request to close the transaction by the end of March which is the closing of the fiscal year for Japanese banks. We opted for a static pool which is more straightforward to structure from an operational standpoint and has a more attractive risk profile for investors. Moreover, there’s no time call otherwise the maturity would have to be adjusted to account for the inclusion of the call.’’

Looking forward, Matsumoto concludes: ‘’Synthetic securitisations are quite attractive given the benefits in terms of ROE enhancement and RWA relief, but it requires a certain budget and strategic planning.’’

Stelios Papadopoulos