BankBoston Corp. is using the World Wide Web to manage loans backing a complex multibillion-dollar securities deal.
The bank developed a Web-based application for placing new loans in a trust that issued $2.2 billion of collateralized loan obligations, or CLOs, in November.
Market partipants said they knew of no other CLO management system using the Internet.
The move fits into BankBoston's efforts to use the Web whenever possible for internal and external operations, said Chris John, senior section manager of fixed-income systems at BankBoston, which last week announced its agreement to merge with Fleet Financial Group of Boston.
"Getting products developed for the market is dramatically faster using Web-based technology," Mr. John said.
In CLO transactions, banks pool corporate loans and sell them to a trust, which issues bonds backed by the cash flows on the loans.
The structure lets banks remove the loans from their balance sheets, in some cases freeing up capital.
Banks and other financial institutions worldwide sold 46 balance-sheet CLOs totaling $55 billion in 1998, according to Moody's Investors Service.
That total includes 25 so-called synthetic transactions backed by derivative instruments that mimic bank loan performance.
BankBoston developed the Web-based approach for managing the loans in the trust. Because corporate borrowers can pay down loans before the bonds they back have matured, BankBoston could need to replenish the trust.
The bank can use the software to add new loans to the trust and test whether they violate provisions of the CLO. The application also manages the process of removing the loans from the bank's own balance sheet.
The software can manage up to $6 billion of loans, in case BankBoston decides to sell more of the bonds in the future.
BankBoston created the loan management application using WebSpeed development software from Progress Software of Bedford, Mass.
"They blew away our expectations," Mr. John said. "They were on time and on the money." He declined to specify the cost.
A unit of Chase Manhattan Corp. and Lewtan Technologies of Waltham, Mass., offer similar CLO management software, but not for the Internet.
Chase's Capital Markets Fiduciary Services, which has served as trustee on 10 bank balance sheet transactions, provides software that lets banks experiment with putting different loans in the collateral pool. Chase has six users that dial in using a modem and communications software.
"We developed a system that models the compliance and covenant requirements, as in issuer and industry diversity," said Steve Patterson, head of structured finance services for the unit.
Four banks are using Lewtan's ABS System to manage their balance-sheet collateralized loan obligations, according to Usman Ismail, vice president of sales and service at Lewtan.
