(Bloomberg) -- The World Bank sold $510 million of bonds backed by loans it gave companies across the developing world, part of its efforts to lure more institutional investors to regions where borrowers have a harder time raising cash.
The development bank's finance arm has bundled up exposures in loans it made to 57 companies across regions like Eastern Europe, South America and Asia, according to Yinni Li, credit analyst at Moody's Ratings. Borrowers included companies in the food and beverage as well as telecommunications industries, Moody's said in a note.
Although a first-of-its-kind deal for the World Bank, this type of transaction is widely known to those on Wall Street as a collateralized loan obligation. CLOs transform pools of risky debt into securities that are often stamped with the highest ratings. Like other kinds of securitizations, CLOs help relieve lenders of the burden of holding onto loans after they've been created by transferring much of the risk to bond investors.
Moody's assigned an Aaa rating, the highest available, to the most senior bond in the World Bank deal, which is a $320 million portion, according to people familiar with the matter. That tranche carries an interest rate of 1.3 percentage point above a benchmark that moves based on prevailing market rates, the people said, asking not to be identified discussing private information. Moody's hasn't rated the underlying loans in the transaction.
Representatives for the World Bank's finance arm and
Investors had shunned securitizations after the 2008 financial crisis, after the pooling of subprime mortgages into seemingly bulletproof securities contributed to the widespread meltdown. But such vehicles have become popular once again, with activity in the CLO market running at a fever pitch. The market for CLOs that bundle large corporate loans is now over $1.3 trillion globally, while a smaller private credit CLO market has grown rapidly in the last few years.
Demand among retail investors for exchange-traded funds that buy US CLOs has fueled the latest spurt of growth in the market. Such ETFs had more than $34 billion in assets as of earlier this month.
The World Bank's Goals
The World Bank has signaled its plans to deploy new financial products as part of a bid to scale up its investments in developing nations. It said in a November presentation that it was designing a new program to build an asset class of emerging-market securitizations, with plans for multiple deals. The goal is to allow the World Bank to invest more by letting private institutions take loans off the lender's balance sheet, Bloomberg reported.
"It's the first time the World Bank has done this," World Bank president Ajay Banga told Bloomberg last month. He also said at the time that the institution was working with
It's one of the strategies, which include debt-for-development swaps, Banga is exploring to bolster the investing power of the World Bank, he said.
Although rare, there have been other securitizations of debt from borrowers across emerging markets. In 2023, Singapore-based Bayfront Infrastructure Capital sold a $410 million CLO supported by cash flows from project and infrastructure loans and bonds tied to projects across Asia-Pacific, the Middle East, the Americas and Africa, according to data compiled by Bloomberg.
--With assistance from Antony Sguazzin.
(Updates throughout to add more context on CLOs.)
More stories like this are available on bloomberg.com
