Portugals asset-backed securitisation (ABS)
market opened on Tuesday after a five-year hiatus. The return
deal prioritised reserve fund replenishment, removed
counterparty risk, and used an exposure portfolio mechanism
to cover set-off risk.
Banif Banks 158.3 million series A
notes issuance is the first to be placed with investors since
the financial crisis, and shows how banks can use ABS to
source finance beyond the European Central Banks (ECB)
While the ECB requires a single form of
collateral, Banifs notes are backed by auto loans, auto
leases and consumer loans.
To the extent issuers have mixed pools,
this is definitely an attractive alternative, and thats
one of the reasons why Banif went for this transaction,
said Alejandro Gonzalez-Ruiz of StormHarbour Securities,
joint arranger and joint lead manager on the deal.
The four-tranche deal was structured to enhance
the series A notes the only rated tranche.
Placing the reserve account above the three
bottom tranches in the cashflow waterfall shortened the
notes average life and boosted their credit rating.
Counterparty risk was removed entirely by taking
out the cap included in Atlantes Finance No 4. The
notes short life makes it likely they would be repaid
before a basis increase occurred, which is when the hedging
through a swap or cap would be useful.
We eliminated the cap as there was no
reason to link the rating of the notes to the counterparty
when it wasnt adding any value from a credit
enhancement perspective, said Gonzalez-Ruiz.
Rating agencies concerns over Portuguese
bank insolvencies, and the possibility of deposits being used
to set-off loans being securitised, also needed to be
The rating agencies have been very
concerned about set-off risk and have been demanding
Portuguese banks create a set-off reserve requiring a huge
amount of liquidity it can be up to 20% of the whole
deal, said Gonçalo Reis Martins of Sociedade
Rebelo de Sousa, local counsel to the co-arrangers.
For its first securitisation deal in Portugal
Caixa Economica Montepio Gerals Pelican
Mortgages No 6 which closed in February 2012
StormHarbour created a separate exposure portfolio populated
by loans that could replace the asset pool.
Banif wanted to place the majority of assets into
the securitisation, which required a modification of this
exposure portfolio. The banks set-off reserve was
funded with cash, but it has the ability to be replaced with
new loans and leases as the bank originates them.
With this additional enhancement regarding
covering the set-off risk, and given the success in
placement, the deal could open up a new avenue in the market
for Portuguese banks, said William Smithson, also of
Sociedade Rebelo de Sousa.
As ECB funding becomes less effective, the deal
could pave the way for other Portuguese banks to use the
structure, he added.
On the band wagon
In itself, the Atlantes Finance No 5 deal
doesnt signal the recovery of Portugals ABS
market, at least in the short-term. However it is an
encouraging sign of investor confidence in the countrys
The positive from this issue is that it
signals a change in the market in that there is still
appetite for Portuguese risk, said Uria Menendez
partner Pedro Ferreira Malaquias.
Market observers are not convinced that a wave of
similar issuances will follow in the immediate future. The
biggest banks are unlikely to take the time, and pay the fees and coupon,
required by this deal to raise 160 million, local
We are talking about a risk that is
bearable, short-term and comes with a good price, said
However they do think it will spark banks to
think of ways to gain funding through securitisation beyond
the ECB, as well as other capital markets. The domestic
retail bond market is emerging as an unlikely source of
alternative source of private finance.
This week Portugal Telecom doubled its retail
bond placement on account of high investor demand. Corporates
are placing direct bonds in the retail market, said Filipe
Lowndes Marques of Morais Leitão Galvão Teles
Soares da Silva & Associados.
You see a lot of that at the moment in
Portugal, and I think banks are also jumping on that
bandwagon, he added.
This is despite similar debt being impossible to
place overseas. The foreign perception is very
different to the national perception, Lowndes Marques
Banif Bank sold 158.3 million of Atlantes
Finance No 5s series A notes, rated A- by Standard
& Poors, on July 17 to foreign investors. The
series B, C and S notes were not rated or placed with
investors. The series A notes were listed on the Lisbon stock
exchange and are governed by Portuguese law.
Co-arrangers StormHarbour Securities
and Banif Investimento were represented by Sociedade Rebelo de Sousa on Portuagese law and
K&L Gates on foreign law.