A&M's PAG team was the sole arranger for Aareal Bank AG’s (Aareal) first synthetic significant risk transfer (SRT) securitization referencing a €2 billion commercial real estate (CRE) portfolio partnering with funded and unfunded investors.

Client Challenge

• Alvarez & Marsal (A&M) was retained by Aareal, a leading property specialist bank founded in 1923 and headquartered in Germany, Wiesbaden, to advise on its first SRT.
• Aareal is a property specialist bank that provides financings, banking services and payments solutions for the property sector and related industries, and is present across three continents, Europe, North America and Asia. Aareal Bank’s business strategy focuses on sustainable business success, with environmental, social and governance (ESG) aspects as an integral part of this strategy.
• A&M was selected as the arranger based on a range of factors, including a differentiated advisory and full-service securitization-arranging offering, incorporating all elements required by the client.
• Aareal concluded that the core portfolio of European CRE offered optimal perimeter for a first securitisation transaction.
• Aareal’s goal was to establish itself in the securitization market through a transaction that optimizes capital efficiency.
• Given the nature of the transaction, Aareal 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
  • Addressing specific risk appetites

A&M’s Solution and Approach

• A business and portfolio assessment process was used to help drive decisions on the transaction format, the selection of prospective financing partners and all ramifications.
• By combining funded and unfunded SRT partners, the transaction format and the portfolio criteria achieved every required goal.
• The high sectoral and geographical diversification as well as the high credit quality of the SRT portfolio provided the basis for investors to conduct their due diligence, only using anonymized data.
• In the context of this type of CRE SRT transaction, such structure is rare and reflects the high degree of confidence investors have in Aareal’s robust business model and strong performance.
• Throughout the competitive bidding process, strong demand derived from asset managers and insurance companies resulted in a significant oversubscription.
• The executed transaction was a dual issuance in both financial guarantee and CLN formats.

Quote from the Client

“The successful transaction strengthens our capital efficiency and supports our further growth. SRTs are a tried-and-tested tool of modern and efficient bank management, with investors assuming a portion of the credit risk, and receiving a risk premium in return. With this transaction, we are freeing up equity that we can invest in attractive new business opportunities.” - Andy Halford, CFO of Aareal Bank AG

Quote from A&M

"We are delighted to have worked with Aareal in such an innovative and forward-thinking transaction. The success is testament to the bank’s sophistication and track record as well as the market’s desire for this kind of transaction partnership. In a wider market context, this also helps lay the ground work for further CRE issuance across Europe as we head into the latest iteration of bank capital regulation, which we anticipate being a focus topic among many banks in the coming periods." - Robert Bradbury, Head of Structured Credit