Chemical Banking Corp. is issuing notes whose payoff is linked to the performance of noninvestment-grade bank loans.

The bank's new securitization program is intended to increase liquidity in the loan market by attracting yield-hungry institutional investors. Two notes have been issued, but neither has closed.

"It's pretty clear that the insurance companies are back in the leveraged market," said one banker.

"The market is hungry for assets, and particularly well-priced ones," said another banker.

Insurance companies are required to post capital reserves against noninvestment-grade loans. The notes issued through Chemical Secured Loan Trust are secured and carry higher ratings, resulting in lower capital requirements, the bank said.

The entire credit derivatives market continues to grow, Chemical said, although it remains tiny compared with more-established areas, such as interest rate or currency derivatives.

The bank said it expects rapid growth in credit derivatives, to more than $1 trillion in five years from less than $20 billion of notional volume thus far.

Some experts remained skeptical of a product that has not sold well in the past.

"People have been talking about this for more than 20 years," said a bank executive. "No one has been able to put one together that has worked."

The banker said the problem has been putting together a collection of products that are inherently different from each other. "They are just not commodity products," said the banker.

Nonetheless, bank loan ratings such as those developed by Moody's Investors Services and Standard & Poor's Ratings Group could give investors a credible yardstick for measuring risk.

"Insurance companies won't buy it without a rating anyway," said another banker.

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