Barclays' Massive Loan Pool Eludes Notice

A more than $30 billion pool of corporate loans managed by Barclays (BCS) has slipped by virtually unnoticed, but merits close scrutiny as it sheds light on central bank lending standards loosened by regulators' fight against the global economic downturn.

The transaction, dubbed Newfoundland and rated triple-A by Moody's Investors Service looks to be the largest collateralized loan obligation ever issued, by a large margin. Most CLOs are in the $300 million range and anything over $1 billion is considered large, according to Bill May, an analyst at Moody's.

"It's certainly the biggest CLO I've ever heard of," May says.

Its purpose is almost certainly to allow Barclays to use its corporate loan portfolio as collateral to obtain short-term funding from a central bank, according to May and other analysts and economists. They are divided, however, on whether the European Central Bank or the Bank of England is the more likely lender. Neither central bank responded to requests for comment.

Barclays declined to discuss the transaction, which it does not appear to mention in its public regulatory filings and the existence of which was unknown even to close followers of the company like Sandy Chen, analyst at Panmure Gordon.

"The more light that can be shed on this, the better," Chen says.

Central banks have lowered lending standards in response to the global crisis, which has sparked controversy. So has the fact that they are relying on much-maligned ratings agencies such as Moody's to determine what types of securities are suitable for use as collateral.

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