LONDON, Aug 29 (IFR) - Nord/LB's infrastructure loan capital
relief deal, Blue Rock, points to a potentially powerful role
for structured products in recycling capital for those banks
still writing infrastructure business.
Project Finance International reported that the unrated deal
covered a GBP307m book of 20 UK PFI loans, attaching between
GBP300k (0.97%) and GBP13.5m (4.5%). Nord/LB is paying 875bp
over Libor for the credit protection. The legal final maturity
is 29 years, though average life is 10 years.
Blue Rock was bought by GCP Infrastructure Fund, according
to PFI, a sister publication of IFR. StormHarbour Securities was
structuring and placement agent on the deal.
Long-dated infrastructure loans incur fierce capital
charges, and several banks have been selling portfolios as a
result - some in large volume to exit the business entirely.
But offloading pre-crisis infrastructure loans, often
originated at uneconomic levels by banks looking for ancillary
business, that have not been marked to market, crystallises
So a structured capital relief trade makes more sense for
banks like Nord/LB that simply want to hold their loans to
maturity, but recycle their capital into new business.
Only a handful of structured deals have been done to date,
partly because they take a long time to create, and partly
because capital relief deals on infrastructure assets require
quite specific skillsets from investors.
Larger portfolio risk transfer trades, for example Standard
Chartered's START trade finance CLOs or Commerzbank's SME deals
from the CoSMO programme, rely to some extent on statistical
approaches to model probability of default and loss given
default, but infrastructure loans are less granular.
With only 20 loans in Blue Rock, buying this deal requires
specific infrastructure expertise and loan-level due diligence,
though this is mitigated by the underlying British government
Infrastructure funds are best placed to provide this
knowledge, but may not be comfortable with the bespoke funded
credit default swaps typically used to write the protection.
Trade credit or corporate loan books are more common forms
of collateral for capital relief deals. Buying protection on
these books usually involves a much higher coupon - Standard
Chartered, one of the heaviest users of capital relief
structures, paid 14% for its Oryza CLO deal (USD1.5bn portfolio
providing USD105m in capital relief). Tra de and corporate books
also have much shorter maturities - Oryza CLO was a three-year.
GCP has done one previous trade, selling protection on a
GBP233m SMBC portfolio to cover losses from GBP2.33m to GBP14m.
Santander sold the largest deals in 2008 and 2009 through
its Boadilla programme. Dutch pension fund PFZW sold protection
on the risk in a EUR500m book in 2008, following this with an
EUR850m deal in 2009.
Nord/LB still has appetite to offer portfolio trades of this
sort. It used a similar securitisation structure at the end of
July, tranching a EUR14.5bn portfolio of corporate loans, real
estate, aviation loans and wind farm loans to allow its
shareholders, Lower Saxony and Saxony-Anhalt, to provide a
guarantee on the EUR700m second loss piece.