News
Innovative GARC transaction prints
Intesa Sanpaolo has printed an innovative risk transfer transaction - and the largest to date - from its GARC programme, with Banca IMI acting as arranger. The €2.5bn GARC SME-5 synthetic securitisation references a granular portfolio of Italian SME loans.
According to Elisabetta Bernardini, head of credit portfolio management at Intesa Sanpaolo: "This was an innovative structure, since it was completed through a limited recourse loan, provided for funded first loss protection in favour of Intesa Sanpaolo - as per article 7 comma 1 letter A) of the law 130/99 - for an amount equal to 95% of the junior notes."
Previous GARC transactions were structured in a tranched cover format, she adds, since "investors sold funded first loss protection by pledging cash collateral with the originator." In the latest deal, several investors were involved in the placement through a competitive process.
The GARC platform was set up in 2014 with the goal of optimising the capital absorption profile of the bank's credit portfolio. "The use of synthetic credit risk transfer transactions is best practice at international level as a tool for capital optimisation. Intesa Sanpaolo transactions are structured with the purpose of reducing the regulatory and economic capital absorption (at prices which are consistent with value creation) and supporting the business growth of SME clients," Bernardini says.
The expected maturity of the transaction is in line with the three-year weighted average life of the portfolio. The final spread of the junior notes was in the low-teens.
The investors involved in the deal were highly specialised and interested in gaining access to the Italian lender's origination platform for Italian SMEs. Finding them, however, was one of the challenges.
As Bernardini points out, "enlarging the investor base at a price consistent with our internal targets was one of the complexities. Such transactions require extensive knowledge of the Italian SME market and a full understanding of the originator's credit process, such as underwriting criteria, internal rating models, monitoring procedures and management of non-performing exposures."
As part of the platform's programmatic issuance, she anticipates further deals referencing performing portfolios. "At the moment, we are structuring one or two transactions a year on SMEs, but we expect to develop the platform and include other asset classes that may be of interest to the market."
14/03/2017 17:01:17
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