Societe Generale, the French financial services group, recently got its asset-backed commercial paper program off the ground, just over six months after it had established the conduit. Called Mercure Trade Finance, the program transfers the risks generated on trade assets in over 50 countries by SG's commodities and trade finance business.
At present, the size of Mercure is $200 million, but SG is working to expand this to $500 million, which it expects to do shortly. Initially, the risks transferred are on oil receivables, but as the program expands, the company will include other commodity financing as well.
The reason Mercure took so long to set up was because Standard & Poor's needed to gain the necessary historical data on which to base its rating. This was problematic as the information came not only from SG, but also from insurance companies, banks and obligors. In the end, S&P gave an A1-plus rating to the program.
Due to the short-term nature of the assets and fluctuating volumes, SG employed a revolving synthetic structure on the deal so the assets are easily replaceable. Any cash generated will be used in the purchase of investments matching the maturity of the notes issued by Mercure, and will be used as collateral in the event of losses.
SG's own structured credit derivatives group arranged the deal. The team was established in 1998 as the company sought ways to lower its on-balance sheet capital exposure.
Wissem Bougarde, a member of the team that worked on the deal, said that in future the company may seek to raise funds through a longer-term ABS issue. "Issuing medium-term notes out of the program is certainly something we will be looking at," he said. "But at the moment we didn't want to do that, as it would involve a new class of assets, and working with S&P using a different methodology."
Bougarde said the company had been pleasantly surprised by the investor response. "Insurance companies and money market funds were very interested in the deal," he said. "They wanted to have this kind of exposure for these kind of assets which they don't find in many other conduits."
Meanwhile, Germany's Commerzbank has also recently established its own new ABCP conduit. Although the bank has yet to issue any notes from the program, called Kaiserplatz Funding, proceeds from it will be invested in debt securities, loans, receivables and other financial assets. Credit enhancement for the program - which Moody's Investor's Service rated at Prime-1 - will be in the form of a guarantee provided by Commerzbank.
