European banks are having a hard time getting loans off their books by bundling them into collateral for bonds, which would free up capital for more lending. So instead, many are opting to sell securities exposed to the risk in these assets.
The latest recognition of what is known as “synthetic” securitization comes from the Prime Collateralised Securities Initiative, an independent non-profit that seeks to boost asset-backed issuance by labeling securities that meet its criteria as “high quality.” On Thursday, the PCS announced a new label to be awarded to synthetic transactions.
“PCS hopes that its new label will, once again, help support the market by assisting both protection buyers and investors through standardization and added transparency,” the organization stated in a press release.
The organization’s website touts synthetic securitization as “another way for banks to
It is the first new label from PCS since the creation of its original PCS
PCS has already granted its first PCS Risk Transfer Label to a recent transaction by Italy’s UniCredit linked to the performance of a pool of loans to small and medium-sized companies. (The size of the transaction was not disclosed.)
Data on synthetic securitization is scarce, given the private nature of the deals. Deutsche Bank recently published an estimate that issuance reached €94 billion in 2016.
Among notable transactions, Dutch pension fund PGGM announced in January of last year that it had entered into a
Europe’s true-sale securitization, in which an originator (or aggregator) sells loans to a special purpose vehicle, which then issues asset-backed securities, is “
The good news is that synthetic securitization, in which the originator transfers the credit risk of the bundled loans via credit derivatives or guarantees to the capital markets, offers many of the same benefits - despite the fact that the loans themselves remain on the originator’s balance sheet.
