A&M's PAG team acted as lead financial advisor to Deutsche Pfandbriefbank AG (pbb) on its first synthetic Significant Risk Transfer (SRT) securitisation, referencing a $2 billion loan portfolio secured by Commercial Real Estate (CRE) properties in the US.

Client Challenge

• Alvarez & Marsal (A&M) was retained by pbb, a leading European specialist bank for financing investments in commercial real estate, headquartered in Garching near Munich, Germany, to advise on risk mitigation and capital management in connection with its US portfolio.
• As a leading European specialist bank, pbb provides loans to the real estate industry in Germany and Europe. It is a major issuer of Pfandbriefe and also issues unsecured financial instruments in the form of bearer and registered securities, as well as green bonds. Its shares are listed on the Frankfurt Stock Exchange.
• The most market SRT transactions are based on an ongoing risk-sharing premise, i.e. the references business is core relationship lending for the originating bank and is therefore expected to continue to be supported for the foreseeable future. This was not entirely the case for pbb, as it plans to exit the US market.
• As a result of this factor, together with the inaugural nature of the transaction and the tight timeframe, A&M was selected as the lead advisor. This reflected, among other reasons, a differentiated advisory and full-service securitisation offering that incorporated all elements required by the client, particularly the team’s demonstrated expertise in inaugural issuances and highly complex situations.

A&M’s Solution and Approach

• Given the nature of the transaction, pbb encountered several hurdles, including:
  • Selecting an optimal transaction structure and format
  • Gauging market interest
  • Preparing for the due diligence process
  • Ensuring competitive pricing and smooth execution
  • Navigating regulatory discussions
  • Managing a tight timeline to close by year-end
• A&M delivered an analysis comparing options for the bank, including a whole loan sale, cash securitisation, and synthetic SRT. Following an in-depth bottom-up and top-down analysis of the US portfolio, A&M helped identify the optimal transaction structure and perimeter to achieve the bank’s goals.
• A synthetic securitisation of the bank’s performing US CRE portfolio offered the highest RWA and capital relief, while preserving asset value and creating resilience against future risks stemming from the US portfolio.
• A business and portfolio assessment process was used to support decisions on the transaction format, as well as the selection of prospective financing partners, through a two-phase process that provided the necessary competitive tension, alongside consideration of all related ramifications.
• Consistent and fully transparent regulatory engagement ensured that all parties’ sensitivities were addressed in advance, supporting timely execution.
• Through innovative features, including control mechanics new to SRT, investors were able to align interests and risks with pbb accordingly.

Quote from the Client

“We are very pleased that we had such a renowned and experienced partner at our side in A&M, who provided us with reliable and prompt advice throughout the entire process thanks to their expertise. The transaction is a milestone for us in our withdrawal from the US market. It enables us to rapidly implement the economic hedging of 16% of the risk associated with the reference loan portfolio.” — Andreas Wuermeling, Head of Originate & Cooperate at pbb

Quote from A&M

"It has been a privilege to have worked with pbb on this innovative and groundbreaking transaction. The transaction’s success is a testament to the bank’s determination and internal rigour, as well as the market’s desire for this kind of close and collaborative transaction partnership. In a wider market context, this also helps lay the groundwork for further CRE issuance for European banks in the US as we head into the latest iteration of bank capital regulation, which we anticipate will be a focus topic among many banks in the coming periods." — Robert Bradbury, Head of Structured Credit