Asian innovation of the year: ABCP programme for Taiwan’s bond funds
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Asian innovation of the year: ABCP programme for Taiwan’s bond funds

Lehman’s innovation solved a problem for investors holding illiquid local currency structured notes.

At a glance:
Deal type:
Asset-backed commercial paper programme for Taiwan’s bond funds
Lead manager: Lehman Brothers
Date: First issued October 2005

Euromoney’s new award for deal innovation identifies new or creative deal structures that solve problems and are likely to prove seminal. Lehman Brothers’ clever asset-backed commercial paper (ABCP) deal for Taiwan’s bond funds fits that bill, as much for its innovative structure as for its underlying security.

The programme solved what might have become a systemic risk facing domestic institutional investors, principally bond funds, in Taiwan holding large sums of illiquid New Taiwan dollar-denominated structured notes, the coupons of which were inversely linked to US interest rates. As those rates rose, the income from the notes fell and liquidity dried up, meaning that funds holding large amounts of the notes were either unable to liquidate their holdings or would have to incur significant losses in doing so.

The Financial Supervisory Commission, Taiwan’s principal financial sector regulator, was becoming concerned about the ability of these funds to meet redemption claims en masse and so turned to Lehman Brothers for a solution.

“This structured note has been around the market for two to three years,” says Albert Weng, managing director and head of Lehman Brothers’ Taiwan branch, “but the FSC realized at the end of 2004 that the illiquidity of the bond funds was becoming very serious and they wanted to resolve the problem within one year.

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