SCI CRT Awards: Innovation of the Year

Category: Capital Relief Trades ABS

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Winner: Colisée 2020

Societe Generale’s Colisée 2020, a private club capital relief trade that provides protection on a portfolio of equipment lease exposures, is awarded SCI’s Innovation of the Year. The deal - which closed during 4Q20, in the midst of a pressured economic backdrop - references a €1bn portfolio of equipment lease receivables distributed by Societe Generale’s French retail network to over 3,000 corporates, consisting of French SMEs (accounting for 76% of the portfolio) and midcap clients (24%). Further, the transaction complied with Article 270 for STS securitisations, at a time when the STS framework was not yet legally enforced for synthetic securitisations. 

The investors on the trade are ArrowMark Partners and Christofferson, Robb & Company (CRC). “We are pleased to support Societe Generale’s application for the SCI 2021 CRT Award under the Innovation of the Year category,” comments Kaelyn Abrell, partner and portfolio manager at ArrowMark Partners.

The credit protection is structured as a funded financial guarantee and covers a low mezzanine tranche of the portfolio, while Societe Generale retains unhedged a thin first loss tranche and the senior tranche. The transaction is particularly innovative, as leasing receivables remain an unusual asset class for significant risk transfer trades.

“Colisee 2020 was issued in a particularly challenging context referencing an asset type that had never before been synthetically securitised in France. The very high quality of the dialogue with the SG team helped us to get comfortable with the underlying credits. Moreover, SG were instrumental in the implementation of structural risk mitigants relating to the moratorium and performance of underlying corporates during the Covid crisis,” says David Fitoussi, partner and head of origination at CRC.

Furthermore, the complex macroeconomic context imposed by the coronavirus pandemic, directly impacted the SME-dominant pool. Societe Generale focused thoroughly on the monitoring and servicing of the leases and assessment of the borrowers/lessees’ creditworthiness.

Pascale Olivié, director, asset-backed products advisory at Societe Generale, explains: “Looking back at 2020, there were no CRT transactions specific to SMEs. In that sense, we had to be extremely precise in our due-diligence and risk analysis.”

Following EBA guidance, French banks applied moratoria measures on their loans to SMEs and midcap clients to a large degree. However, this brought high opacity on the performance of SME/midcap portfolios and, in this case, half of the pool was under moratoria.

“Consequently, we had to be more transparent than usual, and did so through an extended due diligence, and resulting in a selected static portfolio with a strict sectorial approach,” Olivié explains. “We adapted to the context and combined a certain risk pedagogy with extensive data. As such, closing a static synthetic securitisation within this remarkable context is a great achievement for Societe Generale.”

Honourable mention: SLG 1

Credit Suisse closed in 2Q21 a bilateral significant risk transfer transaction dubbed SLG 1. The structure references a non-granular portfolio of European mid-market loans, predominantly sub-investment grade corporate loans, originated by Credit Suisse’s Swiss Corporate Bank and provided primarily to DACH-domiciled companies.

The transaction comprises a mixed currency pool with a single equity tranche and an embedded FX mechanism to avoid currency mismatch. It further introduces variable CDS premium linked to the average spread of the reference portfolio. The forward-looking structure is designed to let the reference portfolio grow over three years to a target size of €1bn.