Transcript Slide 1
DACT Securitisation: An efficient alternative funding tool Maurice Jongmans Rabobank International Corporate Origination and Structuring Rabobank International1 Definition Illiquid pools of assets which are packaged, ring-fenced, underwritten and distributed in the form of liquid Asset Backed Securities. The cash flows of the underlying assets are the prime source for the payment of interest and principal of the Asset Backed Securities. 2 …Bold statement? “After the 2008 Credit Crisis, Securitisation has no raison d'être” 3 Issuance Trends – Term Securitisation Securitisation still holding strong although at a somewhat lower level Issue size per year in EUR billion YTD 2011 by Asset Class 2% 6% 0% 900 RMBS 10% 802.5 CDO 750 16% 66% Other ABS Auto Credit Card 600 469.2 Source: DB, Bloomberg 458.4 428.6 450 YTD 2011 by Country 364.7 300 248.6 9% 5% 31% Netherlands UK Spain 10% 150 Italy 17% 28% 0 2006 Source: DB, Bloomberg 2007 2008 2009 2010 YTD11 Other Germany Source: DB, Bloomberg 4 …then perhaps? “Securitisation is less efficient” 5 Pricing of term securitisation first half 2007 versus 2011 Credit Margin of an AAA-bond; being the most senior position of the transaction Nov. 2011 2007 Residential Mortgages Backed Securities 120 bps 11 bps Commercial Mortgage Backed Securities 400 bps 18 bps Auto Loans 65 bps 45 bps Collateralised Loan Obligations 350 bps 25 bps 6 For corporate securitisation, let’s turn to ABCP-market The so-called Asset-Backed Commercial Paper (ABCP) Market in short: Commercial Paper with a tenor less than 360 days Frequent issuance by bank sponsored ABCP conduit Size: Currently around USD 380 billion Short-term ratings A-1 / P-1 (consistent with a long term A / A2 rating) Backed by assets and cash flows Matches short-term, variable and/or smaller portfolio’s of receivables 7 ABCP Conduit Securitisation: an overview Key Considerations Transaction Size Asset Type Rating Advance Rate Flexibility Time Frame Usually starts with EUR 40 million Assets suitable: trade receivables, lease portfolios, auto loans, consumer loans and film rights Transaction structured to short term A-1 / P-1 ratings Typically 85% - 90% of eligible receivables New subsidiaries, new jurisdictions can be added post closing Accommodates multiple currencies Allows for fluctuating pool sizes and seasonality 2-3 months to closing and funding from mandate and complete data set 8 ABCP – market: very liquid market for client driven deals Total Outstanding in USD billions from January 2001-October 2011 1,400 1,200 Rise and fall of SIV Conduits 1,000 800 600 400 200 0 Source: FED, Rabobank 9 ABCP – market: and efficient! As example Rabobank’s own client conduit Nieuw Amsterdam Cost of Funds (1 year) vs. 1, 3 months US LIBOR Cost of Funds (1 year) vs. 1, 3 months EURIBOR 1.8% 0.45% 0.40% 1.5% 0.35% 1.3% 0.30% 0.25% 1.0% 0.20% 0.8% 0.15% 0.5% 0.10% 0.3% 0.05% 0.00% Sep/10 Dec/10 1m USD Libor Mar/11 3m USD Libor Jun/11 Sep/11 USD CP Rate Average 1 year US LIBOR and CP rate 0.0% Sep/10 Dec/10 1m Euribor Mar/11 3m Euribor Jun/11 Sep/11 EUR CP Rate Average 1 year EURIBOR and CP rate 1 month LIBOR 0.23% +/+ 9bps 1 month EURIBOR 1.07% -/- 20bps 3 month LIBOR 0.29% -/- 0bps 3 month EURIBOR 1.27% -/- 41bps EUR CP Rate 0.29% EUR CP Rate 0.86% 10 ABCP-securitisation structure Typical Conduit Securitisation Structure Basic Concept From the Corporates perspective Legal: True Sale Risk Transfer: Non Recourse Account Debtors Receivables Liquidity Trustee Facility Accounting: On Balance Sheet (Standard) Sales Sale of Receivables Corporate Proceeds CP Proceeds Ownership Interest SPV (Purchaser) Limited Recourse Loan Facility Nieuw Amsterdam ABCP Investors CP Notes rates A-1/P-1 11 ABCP-securitisation: Basic Concept Usually a revolving sale of assets to an SPV per month, bi-weekly, weekly or daily Ideally, portfolios are highly diversified but larger concentrations can usually be accommodated Risks of the portfolio are substantially transferred, although the Borrower holds a first loss position in the portfolio Investors look to the assets for repayment, not to the Borrower, and are protected from the applicable credit enhancement No change to the Borrower’s credit and collection policies or cash management procedures Corporate remains servicing portfolio Going concern no notification to debtors of the sale of receivables 12 ABCP-securitisation structure: Funding Side Liquidity Facility Account Debtors Liquidity Facility: - Sponsored by banks - To support liquidity of the ABCP paper Trustee Receivables Sales Sale of Receivables Corporate Proceeds SPV (Purchaser) Proceeds Nieuw Amsterdam CP Notes rates A-1/P-1 ABCP Investors ABCP Investors - Institutional Investors - Name of corporate unknown to investors 13 ABCP-securitisation structure: Corporate Side Securitisation structure Account Debtors Trustee Liquidity Facility Sale of Receivables Corporate Proceeds SPV (Purchaser) Nieuw Amsterdam CP Proceeds CP Notes rates A-1/P-1 ABCP Investors Relation between Corporate and SPV Receives purchase price (on average 85-90% of the total receivables portfolio) Purchase price is determined based upon historic performance; defaults, write offs, dilution, DSO After collection of 100% of outstanding receivables, the remaining 10 - 15% after interest deduction and cost will flow back to the company 14 Factoring vs. Securitisation FACTORING Program Limit Commitment Differs, usually a max. of EUR 150 mln SECURITISATION From EUR 40 mln, transactions in excess of EUR 1 bn not uncommon If debtors are offered 1-year commitment, but 2-or 3 year facilities possible Debtors Cherry picking – in most cases ‘household names’ The portfolio approach Funding Bank Funding Funding in Capital Market Static Dynamic One country per facility One or more countries Credit insurance usually is required Normally no credit insurance needed Advance Rate Number of Countries Insurance 15 ABCP-securitisation: Benefits & Disadvantages Advantages Non-rated companies can tap the international capital markets New, incremental source of liquidity – diversification of funding Term commitments are possible Syndication can address wallet sizing concerns of other relationship banks Potential off balance sheet solutions can be explored Specific financial covenants typically not required but cross default to existing loan covenants Disadvantages Securitisation is not a product for all for example: a smaller portfolio diversified over multiple countries can be costly Advance rate depends on quality and availability of historical receivables performance data Although it does fit well with other financing in many cases a carve out language may be necessary Available assets for bi-lateral bank facilities reduces Funding is also dependent on efficiency and liquidity of conduits lenders 16