Synthetic securitizations are a well-established structure in Germany, but synthetic special purpose vehicles have typically been set up outside the country.

Dresdner Bank's Promise K 2006-1 brings the vehicle for the first time onto German soil via True Sale International's GmbH (TSI) SPV.

Dresdner and KfW SME Bank concluded the securitization under the Promise securitization platform earlier this month. The transaction covers the securitization of loans to small and medium-sized enterprises (SMEs). The portfolio has a volume of 2.1 billion ($2.4 billion) and is backed by 3,541 Dresdner loans made to German SMEs. The transaction was arranged and placed by Dresdner. KfW takes the role of an intermediary assuming the default risk of the underlying loan portfolios of Dresdner.

Pricing of the individual tranches was fixed on Feb. 15. The deal priced at levels tighter than guidance for several of the tranches.

The 3.1-year, triple-A rated Class A priced at 13 basis points from guidance levels of 15 to 17 basis points. The 3.3-year Class B notes priced at 21 basis points from original price talk in the 25 basis points area. The Class C priced at 32 basis points from talk within the 35 basis point area. The triple-B rated Class D priced two basis points within the original guidance level at 68 basis points, and double-B rated Class E notes priced at the original guidance level at 225 basis points.

TSI and the latest changes made to the German securitization law (ASR, 1/10/05) were primarily enacted for promoting the use of German true sale transactions. However, TSI, through its subsidiary, TSI Services GmbH, coordinates the establishment of German SPVs that can be used for ABS transactions.

The Promise K 2006-1 transaction makes use of this German SPV.

The benefits of using TSI as opposed to launching an independently structured SPV is that law firms and rating agencies are familiar with the procedures and structure. The SPVs are established at competitive prices, said TSI.

"We thought, why not use a German SPV structured under German legal framework," said Nathalie Drucke, a spokeswoman at KfW. "The communication is easier and shorter because you are only having to cope with one legal framework."

Under German law, SPVs securitizing bank loans are exempted from trade tax. The legal framework facilitates and lowers costs for conducting ABS transactions like Dresdner's deal via SPVs that are German domiciled.

"Before, due to German tax legislation, the establishment of SPVs under German law was financially disadvantageous in comparison with models practiced in other countries," Drucke said. "Since legislation was changed, several of such SPVs have been used for true-sale transactions in Germany. The use of a German [company] as an SPV in synthetic securitization is a further step to strengthening Germany as a financial center."

Harmut Bechtold at TSI said the deal was a nice addition to the business. He expects to see more deals from the SME sector become part of its future issuance.

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

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