Case Study – Landmark Synthetic Securitisation of Housing Community Loans
Alvarez & Marsal’s (A&M) Financial Services (FSI) experts worked with Getin Noble Bank’s (GNB) leadership as sole arranger to deliver its inaugural synthetic securitisation for risk transfer, referencing a portfolio of housing community loans. Each housing community is an organisational entity consisting of the owners of premises that are part of a particular element of real estate. This type of asset historically performed very well but was never previously securitised, and the combination of non-EUR currency, long duration and the bank’s own specific situation all created significant complexity that A&M was brought in to help solve.
Client challenge
A&M was appointed by GNB, one of the larger banking groups in Poland, to arrange a securitisation to achieve Significant Risk Transfer (SRT) under the Capital Requirements Reguation and the Securitisation Regulation. This would thereby improve return on equity (ROE) and reduce risk-weighted assets (RWAs). The selection of A&M was based on a range of factors including differentiated advisory, regulatory expertise and a full-service securitisation arranging offering which incorporated all elements required by the client for the process.
In order to improve the overall capital position of the bank it was important to identify target asset classes that could be securitised cost-effectively while also facilitating the bank’s internal monitoring and risk management processes and adherence to external reporting requirements. It was also important to take into account the global macroeconomic outlook, wider market turbulence and the heightened regulatory scrutiny of the bank as factors influencing the optimal transaction.
It was key to focus on asset pools that would combine low-cost protection and efficiency of RWA reduction, while stimulating investor interest and enabling GNB to retain a large portion of the portfolio income, thereby strengthening the bank overall.
A&M's solution
A&M implemented a transaction process involving four main steps:
- Portfolio perimeter and mapping
- Internal and external flagging and reporting framework, integration into ongoing risk management processes
- Investor process
- Shortlisting and closing
A number of portfolios were assessed for maximum suitability, along with specifics of transaction format and the ramifications in each case. In the end, the selected portfolio of housing community loans achieved all the required goals while also representing several “firsts” in the market. A&M worked closely with the bank’s teams to ensure adherence to requirements driven by regulation as well as best practice in the SRT market, while also helping the bank manage the transaction effectively over the long-term.
The executed transaction was a synthetic securitisation of housing community loans, referencing a pool of c. PLN 500m (after application of risk retention). A significant part of the credit risk of the portfolio was transferred to third party investors, through the bank obtaining a funded financial guarantee. The transaction enabled a significant reduction in RWAs of the reference portfolio of more than 80%.
The transaction meets the requirements of STS (simple, transparent and standardised securitisation) in accordance with Regulation (EU) 2017/2402, while the portfolio remains on the bank's balance sheet.
A&M's impact
Key achievements:
- CET1 improvement and capital diversification for the bank
- Significant reduction in risk weight and risk exposure on the reference portfolio
- Overall improvement in ROE for the housing community book
The transaction itself was unusual and complex in a number of ways:
- It is the first time the asset class has ever been securitised
- The protection is denominated in PLN, which is unusual for the SRT market
- This is only the second ever non-supranational SRT in Poland
- It is the first ESG-based risk transfer transaction in Poland, as the assets are largely linked to heating efficiency upgrades
- The transaction was designated STS, the first for GNB, and it is still a very new technology for synthetics in Europe
Working with GNB highlights how A&M FSI can help in complex and bespoke situations to add value across the whole spectrum of solutions for a client, from securitisation structuring and regulatory interaction, to investor coverage.
Quote from the client
“The structure of the finalised transaction allows for a significant reduction in the risk weight of the portfolio covered, while maintaining a significant part of the portfolio revenues, which results in a multiplication of the rate of return on the capital employed.”
Marek Kempny, acting President of the Management Board of Getin Noble Bank
“A&M has brought working knowledge of synthetic structuring and solid investor interest to our deal. They are a good choice.”
Securitisation Unit, GNB
Structured Credit Execution and Advisory at A&M, part of the Global Portfolio Advisory Group (PAG) team, combines market-recognised leaders in the SRT and securitisation space and a specially selected team of financial services and credit experts. A truly global team with extensive credentials across six continents, the combined group brings highly bespoke capital and financing solutions to clients across a range of structures and portfolio exit/acquisition strategies. Get in touch with one of our transaction experts
