S&P Assigns Ratings to HY-FI Securities Series 1 & 2.

Business Editors

MELBOURNE--(BUSINESS WIRE)--Aug. 22, 2003

Standard & Poor's--Standard & Poor's Ratings Services said today it has assigned its 'AA-' and 'BBB' ratings to the respective Series 1 and Series 2 credit-linked notes (CLNs) issued by HY-FI Securities Ltd. (HY-FI), a special-purpose issuer for which ABN AMRO acts as arranger.

HY-FI has been established with the specific intent to offer structured notes to retail investors in Australia and New Zealand. Series 1 and Series 2 were offered exclusively to New Zealand investors.

Noteholders in these transactions are effectively buying credit risk on the same global portfolio of 70 equally weighted companies, although the aggregate portfolio size is different for each series. The aggregate portfolio size is NZ$3.8 billion for Series 1 and NZ$2.667 billion for Series 2. All of the companies in the portfolio were rated investment grade when the final ratings were assigned on Aug. 15, 2003. The different ratings on each series reflect the different quantum of credit risk assumed by the noteholders in each series. For instance, the 'AA-' rated Series 1 notes have lower credit risk than the 'BBB' rated Series 2 notes because losses in the underlying portfolio of 70 companies must exceed 5.56% of the aggregate portfolio size before noteholders are exposed to loss, rather than the 3.69% threshold set for the Series 2 notes.

This transaction is evidence of the increasing disintermediation within the funds management industry as end investors seek out investment alternatives that provide an attractive yield in a low interest rate environment. "This trend is a real positive for the continued development of the capital markets," said Fabienne Michaux, Managing Director, Structured Finance Ratings, "but CLNs are fairly new instruments for retail investors, so they and their financial advisers should take the time to understand the risks associated with these investment alternatives."

CLNs provide investors with an alternative to the equity markets where they can gain broad exposure to companies, sectors, and countries, often without exposure to exchange rate risk, and higher up the capital structure of the companies than achieved as a shareholder. But these benefits need to be weighed up against the position the investor is taking in the CLN capital structure (i.e. the leverage effect) and the other risks that the investor becomes exposed to through the CLN structure itself.

While this is ABN AMRO's first foray into CLNs tailored specifically for distribution in the retail market, ABN AMRO have been one of the most active manufacturers of CDO product to the Australian institutional market through the REMBRANDT vehicle, which has issued 10 series of notes totaling A$240 million since its inception in 2001 across the range of single name CLNs, small basket trades, as well as portfolio CLNs or synthetic CDOs.

Copyright 2003, Standard & Poor's Ratings Services