ABN Amro priced its SMILE 2007 - a 4.9 billion ($6.4 billion) true sale cash securitization of Dutch loans to small and medium-sized enterprises (SMEs). The transaction is the third SME loan securitization under the SMILE program
The transaction follows the 6.75 billion synthetic SME transaction in 2005 (SMILE 2005) and combines certain synthetic aspects of the 2005 deal with the strengths of a true sale cash securitization. "The securitization program is a next step in our capital management," said Hugh Scott-Barrett, ABN Amro's chief financial officer. "With this transaction, we will reduce regulatory and economic capital in a very efficient way while transferring part of the credit risk on the Dutch SME loan book."
According to Scott-Barrett, the SMILE 2007 structure is designed to maximize economic and regulatory capital efficiency under both Basel I and Basel II. At the same time, this hybrid structure provides investors with notes backed by an asset class with a strong credit history.
The capital structure only required a credit enhancement of 15 basis points of annual guaranteed excess spread. With all notes placed in the market, the transaction achieves almost full credit risk transfer on the portfolio. The triple-A, Class A notes priced at a nine basis point spread, the Class B, single-A notes priced at 15 basis points, and the Class C, double-A minus notes priced at 25 basis points.
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