While German true-sale transactions have been rather limited, the country's synthetic securitization arena has been far more active recently. Enter the EURO1.75 billion Provide Home 2001-1, originated by DePfa Bank AG, a strong-bred synthetic that just might standardize future synthetic residential mortgage-backed securities in Europe.

The transaction is a securitization of German-based residential mortgages, a partial synthetic that is structured in four tranches that are rated triple-A to triple-B. Much like the series of German-based synthetic CLOs in Promise Plc, Kreditanstalt fur Wiederaufbau acts as an intermediary by selling protection on the reference portfolio and then hedging itself by buying protection via a credit default swap (CDS) and selling certificates of indebtedness to Provide Home, the SPV.

Isabel Hackenbroch, project manager of the securitization team at KfW, explained: "The objective of Provide is to continue to guarantee a broad supply of housing loans. Securitizing the loans enables the banks to fine-tune their credit risk and to optimize the employment of their equity, which releases potential for the extension of additional housing loans." She continued: "In order to cut costs, the individual transactions are processed according to a uniform and standardized scheme. The structure of PROVIDE has close structural similarities to our previous securitization program, PROMISE, for small and medium-sized loans. Therefore, a high rate of acceptance by investors as well as rating agencies is expected for the new program."

Because KfW acts as the intermediary it allows the bank to obtain a zero risk weighting on its assets, but KfW can then lay off the risk via bond offerings or swap agreements. Torsten Althaus, director of structured finance ratings at Standard & Poor's, said: "KfW is 0% Bank of International Settlements (BIS)-weighted and should therefore offer a higher degree of capital relief than [the] 20% weighted Organization for Economic Co-operation and development (OECD) banks that serve normally as credit default swap counterpart."

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