1Rabobank International

Securitisation: An efficient alternative funding tool

DACT

Maurice JongmansRabobank InternationalCorporate Origination and Structuring

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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.

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“After the 2008 Credit Crisis, Securitisation has no raison d'être”

…Bold statement?

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31%

28%

17%

10%

9%5%

Netherlands

UK

Spain

Italy

Other

Germany

Source: DB, Bloomberg

66%

15%

10%

6% 2% 0%

RMBS

CDO

Other ABS

Auto

Credit Card

CMBS

Source: DB, Bloomberg

Issuance Trends – Term Securitisation

YTD 2011 by Asset Class

YTD 2011 by Country

Issue size per year in EUR billion

Securitisation still holding strong although at a somewhat lower level

2006 2007 2008 2009 2010 YTD110

150

300

450

600

750

900

469.2 458.4

802.5

428.6

364.7

248.6

Source: DB, Bloomberg

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“Securitisation is less efficient”

…then perhaps?

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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

Pricing of term securitisation first half 2007 versus 2011

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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

For corporate securitisation, let’s turn to ABCP-market

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ABCP Conduit Securitisation: an overview

Usually starts with EUR 40 millionTransaction Size

Assets suitable: trade receivables, lease portfolios, auto loans, consumer loans and film rights Asset Type

Transaction structured to short term A-1 / P-1 ratings Rating

Typically 85% - 90% of eligible receivablesAdvance Rate

New subsidiaries, new jurisdictions can be added post closingAccommodates multiple currencies Allows for fluctuating pool sizes and seasonality

Flexibility

Key Considerations

2-3 months to closing and funding from mandate and complete data setTime Frame

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Jan/

01

Oct/0

1

Jul/0

2

Apr/0

3

Jan/

04

Oct/0

4

Jul/0

5

Apr/0

6

Jan/

07

Oct/0

7

Jul/0

8

Apr/0

9

Jan/

10

Oct/1

0

Jul/1

1

0

200

400

600

800

1,000

1,200

1,400

Rise and fall of SIV Conduits

ABCP – market: very liquid market for client driven dealsTotal Outstanding in USD billions

from January 2001-October 2011

Source: FED, Rabobank

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Sep/10 Dec/10 Mar/11 Jun/11 Sep/110.0%

0.3%

0.5%

0.8%

1.0%

1.3%

1.5%

1.8%

1m Euribor 3m Euribor EUR CP Rate

Sep/10 Dec/10 Mar/11 Jun/11 Sep/110.00%

0.05%

0.10%

0.15%

0.20%

0.25%

0.30%

0.35%

0.40%

0.45%

1m USD Libor 3m USD Libor USD CP Rate

ABCP – market: and efficient!

Cost of Funds (1 year) vs. 1, 3 months US LIBOR Cost of Funds (1 year) vs. 1, 3 months EURIBOR

1 month EURIBOR 1.07% -/- 20bps

3 month EURIBOR 1.27% -/- 41bps

EUR CP Rate 0.86%  

As example Rabobank’s own client conduit Nieuw Amsterdam

Average 1 year EURIBOR and CP rate

1 month LIBOR 0.23% +/+ 9bps

3 month LIBOR 0.29% -/- 0bps

EUR CP Rate 0.29%  

Average 1 year US LIBOR and CP rate

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ABCP-securitisation structure

Nieuw Amsterdam

ABCP InvestorsSPV

(Purchaser)

Ownership Interest

Limited Recourse Loan Facility

Proceeds Corporate

Sale of Receivables

Account Debtors

Sales

CP Notes rates A-1/P-1

CP Proceeds

Receivables

Basic Concept

From the Corporates perspective

Legal: True Sale

Risk Transfer: Non Recourse

Accounting: On Balance Sheet (Standard)

Typical Conduit Securitisation Structure

TrusteeLiquidity

Facility

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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

ABCP-securitisation: Basic Concept

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Trustee

SPV(Purchaser)

ABCP-securitisation structure: Funding Side

ABCP InvestorsProceeds

Corporate

Sale of Receivables

Account Debtors

Sales

CP Notes rates A-1/P-1

Proceeds

Receivables

Nieuw Amsterdam

Liquidity Facility:- Sponsored by banks- To support liquidity of the ABCP

paper

ABCP Investors- Institutional Investors- Name of corporate unknown to

investors

Liquidity Facility

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Trustee

Nieuw Amsterdam

Liquidity Facility

Account Debtors

Securitisation structure

ABCP Investors

SPV(Purchaser)

Proceeds Corporate

Sale of Receivables

CP Notes rates A-1/P-1

CP Proceeds

ABCP-securitisation structure: Corporate Side

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

Relation between Corporate and SPV

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Factoring vs. Securitisation

Differs, usually a max. of EUR 150 mlnProgram Limit

If debtors are offeredCommitment

Cherry picking – in most cases ‘household names’Debtors

Bank FundingFunding

StaticAdvance Rate

Insurance

Number of Countries

Credit insurance usually is required

One country per facility

From EUR 40 mln, transactions in excess of EUR 1 bn not

uncommon

1-year commitment, but 2-or 3 year facilities possible

The portfolio approach

Dynamic

Normally no credit insurance needed

One or more countries

FACTORING SECURITISATION

Funding in Capital Market

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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

ABCP-securitisation: Benefits & Disadvantages

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

Advantages

Disadvantages