European Middle Market

Transcription

1 European Middle Market status quo & future development Tobias-Friedrich Andres IACPM Spring General Meeting 2007 June 14th, 2007

2 Part I SME secondary market a status quo

3 European SME-Sector Overview Asset Class Distribution in European Securitisation Markets 13% 51% 25% RMBS CMBS CLO/CDO ABS SME 7% 11% With 7-8% market share middle market loans are still a niche segment but have shown a positive development recently. 3

4 SME European Comission Criteria European Commission Criteria: Enterprise Annual Annual balance Head count: category turnover sheet total annual work unit Medium <50m <43m <250 Small <10m <10m <50 Micro <2m <2m <10 Source: Morgan Stanley, European Commission Entity must satisfy either of the financial criterion in addition to the employee headcount regulation Entitiy must be independent, i.e. must have less than 25% owned by a parent company 4

5 Reasons for Slow Development SMEs often do not fullfill transparency requirements do not favor being securitised due to lack of knowledge or corporate policy Banks unsufficient data quality underdeveloped modelling capacities Mixed experience with Rating tools Market Bank lending to SMEs still dominating but highly fragmented relationship and regional presence play a crucial role high competition and supressed margins Although investor demand seems high and risk/return in SME is volatile, the number of banks generating volume to securitise is still rather limited. 5

6 SME Underlyings & Structures I Underlying Key Issues Structures Senior Loans Developed market for senior loans with KfW as an important catalyst via Promise-Platform pure SME-pools still rare, often SME complements in corporate CLOs Investor demand / liquidity: stable outlook Transactions: Promise FTPYME Duoro SME Chavez SME CLO Receivables & Drawing Facilities Securitisation of receivables (ABCP) or short term funds Growing Market at least in Germany Investor demand / liquidity: high Transactions: Geldilux Conduit 6

7 SME Underlyings & Structures II Underlying Key Issues Structures Mezzanine Loans & Profit Participation Rights Growing market for mezzanine loans especially in Germany Profit participation rights as a form of mezzanine capital, combining characteristics of debt and equity Growing issuance in the German securitisation market due to equity gap Investor demand / liquidity: unstable CLO Transactions: PREPS, Heat CB Mezz Cap, Force Non Perfoming Loans (NPLs) Rapid development of trading distressed loans, but no securitisation yet Investor demand / liquidity: very low Future Cashflow Transactions: no transactions 7

8 Part II The Institutional Framework

9 Portfoliomanagement - Drivers Regulatory capital management: Basle II / CAD Balance Sheet Management: IFRS Economic capital management: Capital Efficiency & Limitmanagement 9

10 Regulatory Treatment CLO AAA BBB FLP Basel I 8% flat Basel II cost of securitisation benefit of securitisation Relative Capital Burden for SME stays high Will Liquidity be higher in mezzanine and unrated tranches? Risk weights Collateral Residential Mortgages Retail SME Small SME Corporate SME Basel I % change Basel II standardised % change Basel II FIRB Source: Morgan Stanley, KfW 10

11 Regulatory, Economic & Balance Sheet at one spot Regulatory Economic Balance Sheet CLO Basel I Basel II EL UL (ECAP) MP Volatility AAA 8% flat BBB FLP A portfoliomanagement strategy addressing all three drivers might imply securitising still along the full capital structure. 11

12 Implications Balance Sheet Management: IFRS Regulatory capital management: Basle II / CAD Issuance expected to increase under Basel II, since relative capital charge for SME lendings remains quite high Credit quality of borrower becomes primary determinant of regulatory capital Regulatory leverage potentially moves down the structure Under IFRS rising importance of P+L stabilisation Potential increase in True Sales Impediments due to legal frameworks Economic capital management: Capital Efficiency & Limitmanagement limit management will focus on the lower rated tranches and first loss positions to be hedged or sold Migration largely driven by the business cycle Opportunities to arbitrage cycles in the different european countries 12

13 Part III Structures & Opportunities

14 Tailor it to your needs - Structural Developments I Classic Promise structure: approved and easy Originator KfW Super Senior Swap Partner Bank- Swap Reference Portfolio KfW-CDS Super Senior AAA collateral portfolio Issue proceeds AAA BBB FLP premium SPV premium Issue proceeds AAA-Investors BBB-Investors Junior Swap/ Junior Note 14

15 Structural Developments II Partially funding for Originator: gain on the collateral side by guaranteeing principal repayment on the notes Originator Bank- Swap KfW Super Senior Swap Partner Super Senior Reference Portfolio KfW-CDS AAA BBB FLP premium SPV premium Issue proceeds AAA-Investors BBB-Investors Junior Swap/Junior Note Cash pool Originator Issue proceeds 15

16 Structural Developments III Fully funding for Originator: combining classic Promise securitisation with separate issue of covered bonds Originator Bank- Swap KfW Super Senior Swap Partner AAA collateral portfolio Reference Portfolio KfW-CDS Super Senior Issue proceeds AAA BBB FLP SPV AAA-Investors BBB-Investors Covered bonds eligible Covered Bonds Investors Junior Swap/ Junior Note 16

17 Structural Developments IV Fully synthetic securitisation: cost efficient but no capital market presence Originator Senior Swap Partner Reference Portfolio CDS Super Senior AAA BBB FLP Mezzanine Swap Partner(s) Junior Swap/Junior Note 17

18 New Market Developments 18 Eastern Europe (e.g. ROOF CEE ) Evolving segment along high economic growth prospects Some impediments but possible workarounds rather a question of adequate exposure: Multiseller transactions as an option Xchange Trading of whole loans at the Hannover RMX Risk Management Exchange within the trading segment RMX Creparts RMX is building a trading platform which enables the trade of credits across all groups of financial institutions Advantages: True-Sale of single loans and a standardised evaluation of Standard & Poor s High fungibility and improved comparability of credits Efficient connection between the single loan and the securitisation market Active Portfolio-Management

19 Thanks for your attention! Tobias-Friedrich Andres KfW Riskmanagement Head of Credit Securitisation & Structured Finance