Moody's assigns definitive ratings to SCB's unfunded CDS

Hong Kong, November 20, 2012 -- Moody's Investors Service has assigned definitive ratings to four tranches of an unfunded credit default swap (CDS) pursuant to Balance Sheet Loan Transaction 2012-3 ("the transaction"), where Standard Chartered Bank (SCB) is the credit protection buyer, and Standard Chartered Bank (Hong Kong) Limited is the credit protection provider:

....USD45 million A Tranche in relation to the 18% to 21% tranche, definitive rating assigned Aaa (sf)

....USD45 million B Tranche in relation to the 15% to 18% tranche, definitive rating assigned A1 (sf)

....USD30 million C Tranche in relation to the 13% to 15% tranche, definitive rating assigned A3 (sf)

....USD75 million D Tranche in relation to the 8% to 13% tranche, definitive rating assigned Baa1 (sf)

The ratings measure the risk on an expected loss basis that the credit protection provider will be required to make payments in respect of credit events under the terms of the transaction. The ratings do not address potential losses resulting from an early termination of the transaction, nor any market risk associated with the transaction. The ratings address any premiums due but not paid by the protection buyer, up until an early termination date, if any.

Moody's ratings address only the credit risks associated with the transaction. Non-credit risks have not been addressed, but may have a significant effect on yield to investors.

RATINGS RATIONALE

This is a synthetic balance-sheet collateralized loan obligation (CLO) transaction referencing the mezzanine credit risk (from 8% to 21%) of a USD1.5 billion reference portfolio. The transaction's legal maturity date is in 6.5 years and is scheduled to terminate 3.5 years after the closing date if all credit events (if any) are settled, subject to any early termination events.

The ratings are primarily based on the credit quality and diversity of the referenced portfolio and the structural features of the transaction. The reference portfolio consists of corporate loans that meet certain criteria as to their creditworthiness and diversity. These obligations are initially originated by SCB and its affiliates, mostly in Asia and other emerging market countries.

The credit protection buyer and provider had not executed the contract, which deems the transaction as non-enforceable. However, Moody's has considered the presence of a parallel enforceable transaction, which is expected to share the same reference portfolio throughout the entire transaction term, but references the lower part of capital structure -- the detachment point of the parallel transaction equals the attachment point (8%) of the bottom tranche of the rated transaction.

Moody's has evaluated the legal integrity of the parallel transaction, as well as the presence of identical terms and conditions and other features shared by the parallel transaction and the rated transaction. Moody's will receive periodic reference portfolios and other transaction reports to monitor the credit risk of the portfolio and, hence, the ratings. The parallel transaction is not rated by Moody's.

The transaction terms require the credit protection provider to provide credit protection against the occurrence of credit events in the reference portfolio. Credit events in the transaction are defined as bankruptcy, failure to pay, and restructuring.

The occurrence of a credit event, the compliance to the eligibility criteria and replenishment conditions, as well as the computation of any losses, would be verified by the accountant of the transaction.

SCB can replenish loans or other exposures that have been paid or reduced with new exposures by adding new reference obligations or increasing the notional amount of existing reference obligations during the first 3.25 years (replenishment period), subject to the satisfaction of eligibility criteria and replenishment conditions including (but are not limited to):

(1) the CDOROM managed-to-model test

(2) reference obligations with low internal credit ratings not exceeding certain limits

(3) weighted average life of the portfolio not exceeding 1.5 years

(4) concentration in each of the countries not exceeding the specified amounts

(5) concentration in each of the industries not exceeding the specified amounts

(6) reference entity not being recorded on SCB's early alert review system

For each defaulted obligation, the losses to the transaction would be based on actual recovery received through the loan workout process, and in accordance with SCB's standard procedures. SCB will continue the workout process until it is formally concluded, or the defaulted obligation is sold. If the workout process cannot be completed before 60 business days prior to the legal maturity date, losses for the defaulted obligation would be calculated based on the loan loss provision per SCB standard provisioning policy, and/or the loss determined through the market value quotation process.

ANALYSIS

The main drivers of Moody's analysis of this transaction are:

(1) 3.2% weighted average default rate assumption of the initial portfolio.

(2) 31% weighted average recovery rate assumption of the initial portfolio.

(3) 4.5% weighted-average pair-wise asset correlation assumption of the initial portfolio.

(4) exposure limits to each country based on country ceilings and available credit enhancement to each tranche.

(5) attachment point and the detachment point for each of the four tranches.

(6) structure of the transaction, including the replenishment guidelines and the legal documentation.

The initial portfolio comprises 877 reference obligations by 512 corporate reference entities. The majority of the reference obligations are senior unsecured loans.

The credit quality of each of the reference entities is assessed based on a credit mapping between SCB's internal rating scale and Moody's public rating scale, last updated in May 2011. The initial reference portfolio has a weighted-average credit quality that corresponds to a Ba2 rating based on credit mapping.

In terms of geographical diversification, 63% of the portfolio is concentrated in Asia, and majority of the remainder in the Indian subcontinent (11%), Middle East and North Africa (9%) and Europe (7%).

The top five countries are China (16%), Hong Kong (15%), South Korea (9%), India (8%) and Singapore (8%).

The top three industries in the initial reference portfolio were metals & mining (10%), wholesale (10%) and finance (8%).

RATING METHODOLOGY

The methodologies used in this rating were Moody's Mapping Methodology for Bank Balance-Sheet CLOs published in January 2011, and Moody's Approach To Rating Corporate Collateralized Synthetic Obligations published in September 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Moody's CDOROM model ("CDOROM") was used to measure the potential expected loss incurred by the credit protection provider in this transaction.

CDOROM performs Monte Carlo simulation that takes Moody's default probability assumption as input. Each obligor is modeled individually, with a standard multi-factor model incorporating intra- and inter-industry correlations. The correlation structure is based on a Gaussian copula. In each Monte Carlo scenario, defaults are simulated.

The ratings for this transaction were assigned in line with Moody's existing methodology entitled "Rating Corporate Collateralized Synthetic Obligations", dated September 2009, and "Moody's Mapping Methodology for Bank Balance-Sheet CLOs", dated January 2011, and as further described above. Moody's noted that on October 12, 2012, it released a press release, in which the rating agency plans to update certain assumptions used to rate synthetic EM CDOs. This would bring additional volatility to the ratings on this transaction. Please refer to Moody's press release, subject "Moody's plans to revise its approach to rating emerging market CDOs", for further details regarding the implications of the proposed methodology changes on Moody's ratings.

V SCORE

The V Score for this transaction indicates Medium/High uncertainty about critical assumptions. This is in line with the Medium/High score for the Corporate Synthetic CDO Sector. The V Score for this transaction is driven by a high level of uncertainty of sector performance variability, medium/high level of analytical complexity in accessing risk to exposure in the emerging market countries, and a medium/high level uncertainty in assessing the portfolio credit quality (which is estimated based on credit mapping without knowing the exact credit quality of any individual name), as well as other factors.

Moody's V Score provides a relative assessment of the quality of available credit information and the potential variability of various inputs in a rating determination.

The V Score ranks transactions by the potential for significant rating changes owing to uncertainty about the assumptions due to data quality, historical performance, the level of disclosure, transaction complexity, modelling, and the transaction governance that underlie the ratings.

V Scores apply to the entire transaction, not to individual tranches.

PARAMETER SENSITIVITIES

Moody's also ran sensitivities for key parameters for the four rated tranches. For instance:

If the assumed weighted average default rate of 3.2% used in determining the initial rating were changed to 4.4%, the model output for the A, B and C Tranche will remain not worse than their respective initial ratings, while D Tranche would change to Baa3 from Baa1.

In addition to this change, if the assumed weighted average recovery rate of 31% were changed to 16%, the model output for B and C Tranche will remain not worse than its initial rating, while that for A and D Tranche would be Aa1 and Ba1 respectively.

Parameter sensitivities are not intended to measure how the rating of the security might migrate over time. Rather, they are designed to provide a quantitative calculation of how the initial rating might change if key input parameters used in the initial rating process differed. The analysis assumes that the deal has not aged, and does not factor structural features such as sequential payment effect. Parameter sensitivities reflect only the ratings impact of each scenario from a quantitative/model-indicated standpoint.

Qualitative factors are also taken into consideration in the ratings process, so the actual ratings that would be assigned in each case could vary from the information presented in the parameter sensitivity analysis.

THE COMPANIES

The transaction is sponsored by SCB (A1/Prime-1/B-). Standard Chartered Bank (Hong Kong) Limited, the credit protection provider, is an established affiliate of SCB.

Standard Chartered Plc (A2), including its consolidated subsidiaries (Group), is an international banking and financial services group focused on the markets of Asia, Africa and the Middle East. SCB is the main operating subsidiary of Standard Chartered Plc. The Group provides a wide range of financial products and services to its customers through two main business divisions -- consumer banking and wholesale banking.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

The rated entity has not informed Moody's whether the issuer is publicly disclosing all relevant information about the product.

Information sources used to prepare the rating are the following: parties involved in the ratings, and public information.

Moody's did not receive or take into account a third-party assessment on the due diligence performed regarding the underlying assets or financial instruments in this transaction.

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Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Joe WongAsst Vice President - Analyst Structured Finance Group Moody'sInvestors Service Hong Kong Ltd. 24/F One Pacific Place 88 Queensway Hong Kong China (Hong Kong S.A.R.) JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (852) 3551-3077 Jerome Cheng VP - Senior Credit Officer Structured Finance Group JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (852) 3551-3077 Releasing Office: Moody's Investors Service Hong Kong Ltd. 24/F One Pacific Place 88 Queensway Hong Kong China (Hong Kong S.A.R.) JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (852) 3551-3077 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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