German bank Kreditanstalt fur Weideraufbau (KfW) last week brought to market the first asset-backed securitization deal secured by small and medium-sized business loans originated in Eastern Europe, and it did so in a multi seller format.

Called ROOF CEE 2006-1, the transaction floats €450 million in debt to European investors in a synthetic securitization using credit default swaps. It is another landmark deal for KfW, which has a zero percent risk treatment under Basel, and has lent its government-guaranteed enhancement to innovative securitizations in the past.

Raiffeisenbank and Raiffeisen Bank Polska, the respective Czech and Polish subsidiaries of Dutch bank Raiffeisen International Bank-Holding, originated the 1,256 loans. On average, the loans carry a balance of €360,000, according to a press release from the bank.

Then the Raiffeisen subsidiaries transferred the default risks from their respective portfolios to KfW through a series of credit default swaps, said Jens Linder, vice president and senior analyst in the Frankfurt office of Moody's Investor's Service. If the deal were structured as a true cash transaction, and the Czech and Polish subsidiary banks had to sell the bonds directly to investors, then its ratings might have been capped at lower levels. With the KfW swaps, the ratings on the deal range from Aaa' on the senior tranche to Ba2' on the lowest mezzanine piece, said Linder.

Founded in 1948, KfW is a German government promotional bank, and one of the largest banks in the country. In September 2000, it launched a securitization program aimed at fostering the development of so-called Mittlestand, which are small and medium-sized German businesses. It acts as an intermediary between commercial banks with less than perfect credit and the capital markets that want to invest in their pools of loans. KfW operates a couple of debt issuance platforms in Europe. The Promise program funds commercial loans, while Provide finances residential mortgages. In recent years, it has expanded its business further into Europe, including Austria, Netherlands and the U.K.

The Czech Republic and Poland have issued debt in the securitization market before, through credit card and CMBS deals, respectively.

(c) 2006 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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