The International Finance Corporation (IFC) has signed its first-ever synthetic risk transfer (SRT) deal covering a broad, US$500mn portfolio of trade finance assets.
SRTs, also known as synthetic securitisations, help lenders free up lending capacity by transferring some credit risk to investors while retaining loans on their books. The IFC has previously taken part in SRTs with individual lenders.
In the deal announced today Deutsche Bank acted as arranger and placement agent for a US$340mn senior tranche and a US$110mn mezzanine tranche, bringing in Santander CIB, Axa XL, Axis Capital and Liberty Special Markets on an unfunded basis.
Newmarket, a US specialist SRT investor, bought into a separately placed US$50mn junior tranche.
Use of SRTs by banks has grown strongly in recent years, propelled in Europe by a clear regulatory structure. They usually encompass longer-term assets such as real estate and corporate loans.
The IFC said the securitisation, called the Trade Finance Synthetic Securitisation, is structured “over a three-year horizon”. The underlying transactions have an average tenor of six months and there is a two-year “replenishment mechanism”.
The organisation – the financing arm of the World Bank – said the securitisation has a “private capital mobilisation ratio” of up to 1:19, meaning for every dollar of risk retained by the IFC, up to US$19 is taken by investors.
More than half of the portfolio is in low income and fragile and conflict-affected countries, the IFC said.
“By transferring credit risk to private investors, IFC creates additional capacity to originate new trade finance guarantees where they are needed most,” the institution said in a statement.
“Trade and supply chain finance is one of the most effective ways to close the financing gap faced by small and medium-sized enterprises in emerging economies, a critical driver of job creation,” IFC managing director Makhtar Diop said.
“This securitisation demonstrates that, with the right structuring and standardisation, investor demand can be mobilised at scale and with measurable impact, even in the most challenging markets.”
As an investor, the IFC has previously struck SRT deals for portfolios of trade finance loans originated by BNP Paribas and Credit Agricole.
Earlier this year it securitised an exposure to a portfolio of trade loans held by Santander Chile, also in partnership with Newmarket.
