Supporting SME Financing using Securitisation...

Supporting SME Financing using

Securitisation Techniques

AMTE Final Report November 2006

Chaired by Philippe Madar Société Générale Corporate & Investment Banking

AMTE Final Report

Supporting SME Financing using Securitisation Techniques

2

Table of contents

Introduction............................................................................................................... 3

1 Overview of the SME securitisation market ........................................................ 4

1.1 A few words on the European securitisation market..................................................... 4

1.2 Review of completed and pending works by other entities .......................................... 5

1.3 Main current features and trends of the European ABS market of SME loans.............. 8

1.4 Challenges of the market............................................................................................ 10

2 Public Sector Bodies and SME Securitisation .................................................. 11

2.1 Rationale for intervention of public sector agencies ................................................... 11

2.2 Rationale for originators ............................................................................................. 12

2.3 Understanding the needs and concerns of originators: Scope and results of the Pan European Survey conducted with the collaboration of the FBE........................................ 14

2.4 Quantitative and qualitative effects of promotional programmes for SME securitisation in Europe.......................................................................................................................... 18

3 Standardisation of SME Securitisation Transactions....................................... 25

3.1 Standardised Originator’s Data required for an SME securitisation............................ 25

3.2 Standardised Investor Report for an SME securitisation ............................................ 26

4 Achieved consensus and Recommendations ................................................... 28

4.1 Increasing efficiency of public sector intervention by catering the originators’ needs 28

4.2 Promotion of standardised data ................................................................................. 30

5 Action Plan ........................................................................................................... 31

5.1 Communication to third parties .................................................................................. 31

5.2 Report promotion: Participation in future events ........................................................ 31

5.3 Creation of a barometer ............................................................................................. 31

6 Annexes ................................................................................................................ 32

AMTE Final Report


3

Introduction The scope of the study conducted by a dedicated AMTE working group is the efficiency of European SME securitisation techniques. This initiative, which aims to increase the efficiency of Euros Capital Market and benefit the SME financing activity, involves the intervention of different actors of the economy. Although each of these actors may have specific drivers of interest, the fundamental role and the source of dynamism for the European economy of the SME activity leads to a convergence of actions. Among the main drivers for active participation, SME loans appears to be a key asset class for portfolio managers of banks, which are often subject to some regional, corporate and industry concentrations, and especially as it is the most sensitive by nature to economic downturns. For public sector agencies, securitisation has been identified as an area of interest by which they aim to support and stimulate lending to SMEs. For structuring banks, there is an interest due to the high potential for future growth. And finally for investors, it is an attractive area where they can reach further risk diversification. Nonetheless, specific challenges for this asset class have kept issuance volumes low compared to other ABS asset classes. Indeed, both public sector attention and standardisation are essential for the development of SME securitisation. This report has been built upon those two key drivers and aims to recommend best practices for a further efficient development of SME securitisation.

The report starts with an overview of the SME securitisation market. The second part considers the drivers for public sector agencies as well as originators in a SME securitisation and analyses the needs and concerns of originators through the Pan European Survey which has been conducted with the collaboration of the European Banking Federation. Then, to better assess the efficiency of public sector intervention, the report summarises the quantitative and qualitative effects of promotional programmes existing for SME securitisation in Europe. The third part deals with the possible standardisation of the transactions from both the originators and investors’ standpoints. Finally, the report expresses the recommendations from this AMTE working group, which would facilitate increases in the volume and efficiency of SME securitisations.

AMTE Final Report


4

1 Overview of the SME securitisation market

1.1 A few words on the European securitisation market

For uninitiated readers and clarity’s sake, securitisation is the mechanism by which individually illiquid financial assets such as loans are converted into tradable capital market instruments. More specifically, selected receivables (assets) of the originator are packaged together in an underlying pool and sold by the originator to a Special Purpose Vehicle (SPV). The SPV refinances the pool by issuing debt instruments (Asset Backed Securities or ABS) on the capital markets. Among benefits of securitisation, ABS transactions help issuers to get funding, transfer risk and extend maturity of financing. These benefits can be achieved under two main structures; a cash structure where the primary benefit for the originator is to get funding and a synthetic structure with no funding elements allowing a pure risk transfer through credit protection contracts. An ABS structure allocates collections from an underlying collateral of receivables (asset claims) to the securities in the form of so called tranches. This allocation of collections also extends (inversely) to the distribution of losses among the different tranches in accordance with the priority of payment of the SPV. Individual security mechanisms such as liquidity or credit support offer protection against bad debt loss. External rating is key to the structuring of transactions in order to allow investors to assess risks of portfolios and structures. Securitisation has become a popular source of financing and risk transfer for many financial institutions and corporations as shown by the ABS issuance volumes on the chart below.

AMTE Final Report


5

Total Funded ABS issuance volumes in ! Bln from 2001 to 2006 YTD

(European assets and European distribution)

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

2001 2002 2003 2004 2005 2006

Source: SG Credit Research

Funded ABS issuance volumes in ! Bln by asset type (excluding RMBS)

0.0

10.0

20.0

30.0

40.0

50.0

60.0

ABS AUTO CDO CLO CMBS CNSMER

2004 2005 2006


1.2 Review of completed and pending works by other entities

AMTE Final Report


6

Members of this AMTE working group have already taken part to similar workshops on related topic and previous studies have been used as preliminary material to go further in the analysis. Some previous studies and Working Papers on SME Securitisation by other entities: EUROPEAN COMMISSION DG ENTERPRISE AND INDUSTRY, Study on asset backed-securities: impact and use of ABS on SME finance, November 2004 EUROPEAN COMMISSION and FBE Fifth EU Bank-SME Round Table February 2006-2007: the securitisation of SME loans IMF: Asset Securitisation as a Risk Management and Funding Tool: What Does it Hold in Store for SMES? February 2005 EUROPEAN INVESTMENT FUND: Securitisation as a means to enhance SME financing 24/04/2003 KfW and EIF Workshop on SME Securitisation: June 2nd 2005; where the following were presented:

European ABS Markets and SME Securitisation Alexander Batchvarov, Managing Director, Head of International Structured Finance Research, Merrill Lynch

Impact and Use of ABS on SME Finance – Results of a study for a

DG Enterprise and Industry, Stuart Burton, Director, GBRW Ltd

Banks and their SME Business: The role of securitisation by Thomas Raab, Director, Mercer Oliver Wyman

The EIF’s Experiences in SME securitisation – a few case studies,

Alessandro Tappi, Head of SME Portfolio Guarantees & Securitisation, European Investment Fund

KfW and EIF Workshop May 23rd 2006 – Financing SME growth in Europe – Innovative Securitisation Schemes and Access to finance for European SMEs:

New Developments in the European Capital Market to Close the Financial Gap of SMEs, Dieter Glüder, Senior Vice President Asset Securitisation, KfW Bankengruppe

Mezzanine Financing for European SMEs – Demand & Supply or the

Challenge of Hybrid Products, Alessandro Tappi, Head of Guarantees & Securitisation, European Investment Fund

AMTE Final Report


7

Securitisation of Mezzanine SME Loans – An overview of Existing Programmes and their Rationale, Markus Herrman, Director, Head of ABS Research & Strategy, HSBC

Mid Cap Bonds and Securitisation of SME Bonds – Access to the

capital Markets for Austrian SMEs, Henriette Hochgatterer, Executive Director Treasury, Investkredit Bank AG

How does it feel when they securitise your loan? Experiences from

participants in Securitisation Programme, Ralph Lanckohr, CEO, International Holding AG, Stefan Meutsch, Managing Director, and Christian Jürgens, Managing Director, Vereinigte Verlagsanstalten GmbH

The AMTE Working Group on “SME Securitisation” – Aims and first

results, Philippe Madar, Chairman of the AMTE working group on SME securitisation, Managing Director ABS Europe, Société Générale Corporate and Investment Banking

AMTE Final Report


8

1.3 Main current features and trends of the European ABS market of SME loans

SME securitisation activity across the EU relies on local markets. In addition to the local specificities, the lack of homogeneity between the SME loan portfolios makes the securitisation of SME portfolios more complicated than for other ABS asset classes. With SMEs accounting for over 90% of all European enterprises a recent study concludes that SME assets account for an average 15.5% of European bank assets, which amounts approximately to €3,300 billion. Based on this assumption, a study for the European Commission estimated that between 1% and 2% of securitisable SME claims in bank balance sheets have been securitised. Therefore, there is still considerable scope for growth in this asset class in the coming years. For illustration, the charts below show the amounts of SME risk transferred to the capital markets by distinguishing cash and synthetic structures and the repartition by country.

European SME issuance volumes in ! Bln from 2000 to 2006 YTD

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

2000 2001 2002 2003 2004 2005 2006

Funded Unfunded Total


AMTE Final Report


9

Funded SME issuance volumes in ! Bln from 2000 to 2006 YTD

AUSTRIA

BENELUX

BRITAIN

EUROPE

FRANCE

GERMANY

GLOBAL

ITALY

LUXEMBOURG

NETHERLANDS

PORTUGAL

SPAIN

SWITZERLAND

POLAND & CZECH


Unfunded SME issuance volumes in ! Bln from 2000 to 2006 YTD

AUSTRIA

BENELUX

BRITAIN

EUROPE

FRANCE

GERMANY

GLOBAL

ITALY

LUXEMBOURG

NETHERLANDS

PORTUGAL

SPAIN

SWITZERLAND

POLAND & CZECH

Source: SG Credit Research To date, the bulk of activity has shown two main distinct structures for European SME securitisation: the synthetic structure widely used in Germany through the KfW Promise programme, and the true sale structure used in Spain through the use of special purpose investment companies known as FTPYMEs and benefiting from

AMTE Final Report


10

the guarantee of the Kingdom of Spain. These features will be addressed later in the report. It can be noticed that the high level of activity in Germany and Spain is probably in most part attributable respectively to the PROMISE programme sponsored by KfW and the FTPYME programme supported by the Spanish Government. Due to their importance, the second part of the report presents these programmes in detail. Based on recent transactions and market participants’ views, the main trends in the securitisation market are an increasing investor demand, an improved liquidity following the development of the secondary market and a standardisation of structures. As a consequence, the market is expecting the volume issuance of SME securitisation to grow tremendously in the years to come.

1.4 Challenges of the market

Though expected to grow as a whole, there are some specific driving forces behind the development of the SME securitisation market. In particular, considering the impact of Basel II on Regulatory Capital of retaining SME exposures and securitised portfolios of SME loans, originators will be required to perform advanced risk analysis. As a consequence, greater use of credit protection and risk transfer is likely to boost the SME securitisation market. Among the key characteristics required for a sustained growth, the efficiency of public sector intervention may be essential, especially within the new regulatory capital framework. The report presents the Basel II impact for average portfolios with expected standard characteristics in the following sections. The second main driver for market growth relies in investor confidence for the risk analysis, which can be achieved through standardisation of data. The next two parts of the report aim to address these drivers in further details.

AMTE Final Report


11

2 Public Sector Bodies and SME Securitisation

2.1 Rationale for intervention of public sector agencies

Public sectors bodies have implemented proposals geared at maximizing the impact, efficiency and catalytic effect of public sector intervention in SME securitisation. The principal advantage in SME securitisation being developed further is without doubt that it can help support greater lending volumes to SMEs. Securitisation helps to ease the capital and funding constraints of their primary lenders. Thus, banks and other financial institutions will potentially have enhanced capital and funding resources by using SME securitisation techniques that attract new investors with previously limited exposure to SME risks and transfer risks from banks to broader risk taking population. In addition, securitisation could provide a mechanism whereby higher risk SME borrowers, on the edge of credit acceptability and previously denied credit, could have their needs met, albeit at an appropriate price. From a regulatory perspective, Basel 2 capital weight on SME lending will increase in some cases while falling for shorter secured exposures (see 2.2.1 below). This means that banks may either increase price or tightly monitor SME lending. Thus securitisation remains particularly meaningful after implementation of Basel 2 to help banks maintain lending volumes, so if banks have an efficient tool to recycle SME lending, they will be keen to maintain or increase SME activity.

AMTE Final Report


12

2.2 Rationale for originators

2.2.1 Regulatory: Basel II Capital Weights on SME assets

The source of SME financing is facing concerns due to the coming implementation of the new Basel Capital Accord (Basel II). SME lenders, i.e. mostly banks, will be forced to update their systems and the way they manage SME exposures. Indeed, a deeper analysis of credits through a refinement in scoring models and other procedures may involve high implementation costs and the concern is that it could reduce the lending activity toward SMEs. More directly, Basel II capital requirements are expected to change and will have an impact on SME securitisation. To illustrate and better assess the potential effect of the new regulatory framework, we provide a sensitivity analysis under the advanced IRB approach where the following assumptions can be set:

The range of one-year probability of default taken into account is [0.2%;3.0%] corresponding to the credit ratings of assets between BBB/Baa2 and B+/B1

The Recovery Rates assumptions are 25%, 50% and 75% allowing

for both unsecured and secured assets

The turnover is assumed to be €25m, which is in line with Basel II definition for SMEs (less than €50m)

The sensitivity to default probability, maturity and recovery rate are shown in the charts below.

Impact of Recovery Rates on Basel II Capital Weights

with a 3-y Maturity and !m25 Turnover

0%

2%

4%

6%

8%

10%

12%

14%

16%

0.2% 0.4% 0.6% 0.8% 1.0% 1.2% 1.4% 1.6% 1.8% 2.0% 2.2% 2.4% 2.6% 2.8% 3.0%

BBB BBB- BB+ BB BB- B+

RR 25% RR 50% RR 75% Basel I %

AMTE Final Report


13

The charts enable to highlight the large sensitivity of the Basel II capital charge to the various inputs. From this illustration and given the heterogeneity of loans classified as SMEs, a direct impact on the originators capital requirements can not be derived. Generally, the new Basel Capital Accord will motivate banks to update their internal systems to be able to manage SME loans on a pooled basis and we can expect the SME securitisation market to reap the benefits should the capital requirements be higher than under Basel I.

2.2.2 Why securitise SME credit risk exposures? SME securitisation can be a useful tool for banks for a variety of reasons. Among the main drivers, originating banks are wishing to obtain funding at an interesting level, achieve capital relief and increase overall economic capital adequacy. Moreover, from an individual exposure standpoint, it also aims to reduce some over-concentrations, being on a particular name, on a specific industry sector or on a geographical region. Further advantages brought by SME Securitisation are the portfolio management optimisations in which banks try to improve the risk/return characteristics of their existing portfolio, the economic returns enhancement of banking activity and the opportunity to make liquid an illiquid risk in their balance sheet on particular SME exposures. However, the rationale for a SME securitisation differs from an originating bank to another and the various benefits are of relative importance according to the structure used.

Impact of Maturity on Basel II Capital Weights

with a 50% Recovery Rate and !m25 Turnover

0%

2%

4%

6%

8%

10%

12%

0.2% 0.4% 0.6% 0.8% 1.0% 1.2% 1.4% 1.6% 1.8% 2.0% 2.2% 2.4% 2.6% 2.8% 3.0%

BBB BBB- BB+ BB BB- B+

Mat 1.5y Mat 3.0y Mat 4.5y Basel I %

AMTE Final Report


14

2.3 Understanding the needs and concerns of originators: Scope and results of the Pan European Survey conducted with the collaboration of the FBE

Gaining a better understanding of the needs and concerns faced by originators of SME loans is one of the two main goals of the Workshop on Public Sector Bodies and SME securitisation. To this end, the working group agreed that one of the best tools would be to develop a survey which would be broadly distributed to originators throughout Europe. A key step was developing this initiative with the collaboration of the European Banking Federation (FBE) and the European Association of Cooperative Banks should also contribute. The FBE concluded that the AMTE initiative could be of interest for the Fifth EU Bank-SME Round Table, who’s third and final topic is the securitisation of SME loans. The Round Tables are organised by the European Commission to promote dialogue between banks and SMEs and, ultimately, to promote the availability of finance for SMEs. One of the objectives of the current exercise is to identify good practice and procedures which could be more widely adopted around the EU. The Fifth Round Table began in February this year and will conclude early in 2007. Securitisation is one of three aspects of Bank-SME relations on the agenda. The others are transparency; and mezzanine finance and business transfers. AMTE has been invited to these Round Tables. Purpose of the survey and benefits

The proposed survey on securitisation is designed to gain a better understanding of:

the primary motivations of institutions which are securitising SME exposures;

the main concerns and difficulties faced by originators wishing to adopt securitisation; and

how eventual difficulties are linked to the characteristics of the originators.

The results should give the banking sector information on a growing new market, which benefits from public support. Based on a coordinated action between AMTE and FBE, the results would be formally submitted to the Round Table, thus helping to ensure that EU-level recommendations are based on a proper understanding of the market, and take account of the needs of bank practitioners

The AMTE Working Group is responsible for the compilation of the survey results. The FBE and its members will receive a copy of the results, and will be kept informed of later developments.

Form and results of the survey

AMTE Final Report


15

The survey takes the form of a short questionnaire which is intended for completion by individual banks, whose names are kept rigorously anonymous.

The list of countries which have responded to the survey are the following: Armenia, Austria, Cyprus, Czech Republic, Finland, Germany, Ireland, Italy, Lithuania, Norway, Portugal, Slovenia, Sweden, UK and there were some other answers for which the country of origination has not been disclosed. More than a third of all answers stem from countries in Eastern Europe. Detailed information can be found in Annex 6.2. In terms of SME portfolio sizes, the total amounts to € 318.7 Bln equivalent. It is mainly made of portfolios of £ 41 Bln in UK, SEK 508 Bln in Sweden and € 201.2 Bln in Eurozone countries. In addition, based on countries which answered the survey, we present below the breakdown of SME portfolio sizes according to the originators’ rating range: Originators' rating range in !Mln %

AAA 61 194 19.2%

AA 102 609 32.2%

A 151 969 47.7%

BBB 1 181 0.4%

BB 60 0.0%

Not Rated 1 538 0.5%

N/A 175 0.1%

Total 318 725 100.0% Originators without rating mainly stem from Eastern Europe. Two originators, who contribute about a fifth of the whole SME portfolio in the survey, possess a AAA rating. Questions regarding portfolio of SME loans From an overall standpoint, it appears that the level of diversification of SME portfolios does not constitute a major issue. In particular, the exposure to single names is deemed rather good whereas the diversification in terms of geographical region or industry sector seems slightly less positive. The higher regional concentration indicates the importance of the business relationship between smaller banks and SMEs, which e.g. is of special importance in Germany, where local banks and local SMEs cultivate long-term relationships. In these cases, SMEs are less inclined to take loans from supra-regional banks but prefer loans from banks with local presence. The results of the survey also show that the level of regional diversification is less satisfactory in smaller countries. Therefore, despite the overall good level of diversification, concentration might be a problem for individual banks.

AMTE Final Report


16

Present and future SME lending With respect to the SME lending strategy, originators do not feel constrained on average by risk exposure, regulatory capital weighting and concentration: Only one third of all originators see their risk exposure towards SMEs as an obstacle. These facts explain why 95% of originators plan to increase their SME lending in the coming years. Despite the welcoming willingness of banks to hand out more money to SMEs in the future, the amount of loans granted would grow even further should originators benefit from cost efficient risk transfer and regulatory capital relief: 4 out of 5 banks would expand their lending if they could transfer risk cost-efficiently. This is an important result: Obviously, for some banks, securitisation of SME-loans is too expensive, which prevents them from securitisation and increasing SME lending. Perception and knowledge of securitisation and public sector initiatives relating to the latter Among the originators who have responded to the survey, there is a slight majority which has not previously securitised assets in general and also which does not plan to securitise SME loans.

Moreover, the survey displays a weak awareness of public sector initiatives aiding SME securitisations. One reason could be that programmes do not exist area-wide (although public support from EIF and KfW is available to most European countries). Another reason might be that existing programs do not target the special needs of originators and thus do not produce interest. The results thus indicate that public sector schemes should be better communicated.

Advantages of SME securitisation Looking at the advantages of SME securitisation for originating banks, a very mixed picture emerges. For example, half of the originators appreciate the increased liquidity of the balance sheet after the securitisation, whereas the other half does not regard this reason as important. The same holds true for the importance of securitisation as a tool for cost-effective funding or capital relief. The diverging answers have to be interpreted such that (not surprisingly) the motives differ from originator to originator. For example originators connect true sale transactions with other motives than a synthetic transaction: Whereas funding is of major importance in case of true sale transactions, it plays a minor role for originators who choose a synthetic transaction. Higher agreement exists with respect to the benefits of securitisation as a tool to manage SME risk. To more than two-thirds of the originators the management of SME risk is of value. Summarising, consensus exists with respect to better risk management, whereas other motives depend on the special needs of the originating bank.

AMTE Final Report


17

Difficulties of SME securitisation When it comes to the main difficulties tied to SME securitisations, costs seem to be the most important obstacle. 57 % of all answering banks value the costs of securitisation as too high, and only 16 % regard the cost argument as of minor importance. This result fits well to the results mentioned above, according to which banks would extend SME lending if a cost-efficient way of risk transfer would be at hand. No clear picture emerges when it comes to the question whether the portfolio is too small, 43 % reckon this as a difficulty whereas at the same time 43 % answered that the size of the portfolio is no obstacle to securitisation. Summary The survey shows that originators connect securitisation with a wide range of advantages, whereupon the management of SME risk seems to be of particular importance. Looking at the main concerns and difficulties faced by originators, the cost argument dominates all other obstacles. This is also confirmed by the fact that an overwhelming majority of banks answered that they would increase SME lending if a cost-efficient way to transfer risk would be available. Please note that, despite efforts, a very limited number of German Banks have answered and significant countries such as France and Spain did not answer, which makes this exercise partial.

AMTE Final Report


18

2.4 Quantitative and qualitative effects of promotional programmes for SME securitisation in Europe

The other main task of this AMTE workshop concerns a qualitative and quantitative assessment of existing Public Sector Agency sponsored programmes in Europe. The first step is performed through a qualitative analysis of the comparative role of different public sector agencies existing structures. It provides a focus on the guarantees which are provided, in which countries and regions as well as on the specific conditions required. The European programmes reviewed in this document are:

The Spanish FTPYME scheme

EIF guarantees

The Portuguese Securitisation Scheme

The KfW Promise programme In addition, a quantitative analysis of transactions has been performed by running prototype portfolio with standard features through the different programmes to determine the impact of the different schemes on costs and regulatory capital savings and a comparative Basle I/II standard. For this, working assumptions have been defined in terms of:

Portfolio average rating (three levels have been considered: BBB+, BB+ and BB-)

Transaction costs as a function of deal size in the case of a granular

portfolio and simulations have been performed in order to determine a relevant tranching for the different portfolios.

AMTE Final Report

Supporting SME Financing using Securitisation Techniques 19

2.4.1 The Spanish FTPYME programme

In May 1999, the Government established a programme of Kingdom of Spain guarantees for SME securitisations, which facilitates true sale transactions of pools. The aim of the originators is cheaper funding rather than capital relief and the guarantee by the Kingdom of Spain significantly lowers the overall funding costs for the originator. Using the following standard assumptions:

Portfolio Assumptions

Minimum Rating single borrower B

Secured loans/ Collateral in % of Portfolio 50%

Number of loan contracts 5000

Maximum Single Borrower concentration <1%

Regional concentration No/ diversified

Industry concentration single industry max. 15%

Industry concentration top 3 industries < 35%

Duration of underlying loans 5 years

Mainly “Small caps” annual turnover < !50 Mln and based on different average portfolio ratings, three tranching have been computed:

Tranche Rating Pool Rating BB+ Pool Rating BB- Pool Rating BBB- Spreads

AAA/Aaa 92,4% 87,4% 93,9% 25 bp

AA/Aa2 0,5% 1,1% 0,5% 45 bp

A/A2 0,5% 0,8% 0,6% 60 bp

BBB/Baa2 1,2% 1,9% 0,8% 100 bp

BB/Ba2 1,3% 1,8% 1,1% 400 bp

First Loss 4,1% 7,0% 3,1% 1600 bp Overall, the risk or financing costs for securitising the portfolio are:

Pool Rating BB+ BB- BBB-

96 bp 144 bp 79 bp The transaction costs depend on the size of the portfolio. Based on market experience we assume that upfront expenses for Structuring, Legal Advice, SPV, Trustee and Rating Agencies are €1.5 Mln up-front and €150 M on-going p.a.. Depending on the pool size, it leads to the following costs p.a.:

Pool Size 500 !Mln 1000 !Mln 3000 !Mln

7 bp 3 bp 1 bp

AMTE Final Report


In addition, underwriting and placement fees also depend on the pool rating, because they are lower for senior tranches and higher for junior tranches:

Pool Size Pool Rating BB+ Pool Rating BB- Pool Rating BBB-

500 Mio. ! 3,4 bp 4,6 bp 3,0 bp

1.000 Mio. ! 3,2 bp 4,4 bp 2,8 bp

3.000 Mio. ! 2,8 bp 4,0 bp 2,4 bp Finally, all-in costs p.a. over 3-mth Euribor (not including servicing fees that can be assumed to be identical with/ without securitisation) are presented in the table below:

Pool Size Pool Rating BB+ Pool Rating BB- Pool Rating BBB-

500 Mio. ! 106 bp 155 bp 88 bp

1.000 Mio. ! 102 bp 152 bp 85 bp

3.000 Mio. ! 100 bp 149 bp 82 bp In a typical FTPYME transaction, the guarantee by the Kingdom of Spain covers ca. 25% of the AAA tranche and the spreads on guaranteed tranches are about 3 bp. (lower risk premium and zero risk weight under Basel 1 and 2), thereby reducing the overall funding costs of the originator by around 5 bp. The FTPYME programme may have further positive effects:

It may have helped to reduce transaction costs because it has led to a certain degree of standardisation in Spanish SME securitisations

The regular deal flow induced by the programme has helped to make

Spanish SME CLOs a rather liquid and well known asset class among investors. This should lead to lower spreads

Capital relief is not the main objective for Spanish originators, nevertheless securitisation will have effects (though there is no difference if a Kingdom of Spain guarantee is involved or not):

Under Basel 1 SME loans are 100% risk weighted, and the capital charge on the portfolio will be 8%. Assuming the originator retains the Equity Piece (risk weight 1250% / deduction), there is positive effect under Basel 1 at least for the better rated pools. For the BBB- pool the capital relief will amount to 4,9% (First loss piece 3,1%), for the BB+ pool it will be 3,9% and for the BB- pool only 1%.

It is more difficult to establish the effects under Basel 2 (Standard approach

vs. IRB Foundation resp. IRB advanced; Regulatory retail portfolio). The worse the average pool rating the more capital might be released by securitising. However, if the originator retains the Equity Piece there may not be capital relief. If we assume that the portfolio consists of SMEs with an

AMTE Final Report


annual turnover of €30 Mln, the recovery rate is 50% and maturity 5 years, we come up with the following figures:

Basel II Capital %


1-yr Avg Default Probability assumed 0,70% 1,70% 0,44%

On balance 8,9% 11,3% 7,6%

After securitisation (First Loss Retained) 4,1% 7% 3,1%

Capital relief 4,8% 4,3% 4,5%

The table shows that securitisation will lead to a substantial reduction of capital under Basel 2 for all three types of portfolios.

2.4.2 EIF guarantees The EIF guarantees can be used for granular and non granular SME pools and True Sale as well as synthetic transactions at almost all levels of the capital structure, from AAA down to B+. Mezzanine tranches wrapped by the EIF can be sold to investors at significantly lower spreads (lower risk premium as the EIF AAA rated and 20% risk weight under Basel 1 and zero risk weight under Basel 2). However, it is very difficult to calculate a quantitative effect from the originator’s point of view, because the EIF charges a commercial fee for the guarantees. Obviously, if the fee corresponds to the premium charged by commercial investors, there will be no directly measurable effect. In addition, other factors play an important role:

The EIF facilitates the placement of the tranches with investors (there is a broader investor base for wrapped tranches). From the originator’s point of view, the EIF thereby considerably removes uncertainty and supports the marketing of a deal

Smaller banks, in particular, profit from the EIF´s experience and knowledge

of the SME securitisation process. Usually, the EIF is involved very early in the transaction and can aid the originator

The EIF facilitates quicker execution and lower transaction costs

Moreover, under certain circumstances (e.g., in very small and illiquid deals)

the EIF fee may be lower than the premium a commercial investor would charge, because the EIF price will only cover the risk but does not necessarily takes into account the “illiquidity premium”

The strong demand for EIF portfolio guarantees proves that these advantages – though difficult to quantify – must be substantial.

AMTE Final Report


2.4.3 Portuguese Securitisation Scheme In Portugal, the public fund created to support securitisation of SME loans is the FGTC (Fundo de Garantia de Titularização de Créditos). FGTC intervenes by guaranteeing SME securitization transactions, either through a direct support to the credits securitized or through a support to the notes backed by this type of credits. Douro SME Series 1 has been the first Portuguese transaction to benefit from the support of FGTC which guarantees the payment of principal of an unrated class of notes that have been subscribed by the originator. FGTC guarantee has been formalised in a bilateral agreement between the originator and FGTC and is not part of the public transaction documents. So, as we do not have any information regarding fees charged by the FGTC, it is impossible to calculate a quantitative effect. However, if the FGTC charges a fee that is below the commercial premium, there is a substantial advantage for the originator. For instance, if we assume the FGTC guarantees the BB tranche of a securitisation of a granular SME pool with an average rating of BB+ and does not charge a fee - while a commercial investor would demand a premium of 400 bp. – the all-in costs of the transaction will be reduced by 5,2 bp. (size of the BB tranche multiplied by the premium :1,3% * 400 bp.).

2.4.4 The KfW PROMISE programme

KfW set up a specific scheme in order to ease the SME securitisation transactions in Germany and also in Europe: the PROMISE platform. In order to calculate the effects of the PROMISE platform, we compare a securitisation with KfW’s PROMISE platform to a stand-alone synthetic securitisation deal that uses a different credit default swap counterparty. The portfolio assumptions are the same as for the Spanish case. However, we assume a synthetic transaction with a super senior credit default swap (Super Senior Swap). This reduces the costs by around 12 bp. depending on the pool rating, so the synthetic deal seems to be favourable for originators that seek capital release and do not use securitisation as a source of funding.

AMTE Final Report


Tranche Rating Pool Rating BB+ Pool Rating BB- Pool Rating BBB- Spreads

Super Senior 82,4% 76,4% 84,9% 7 bp

AAA/Aaa 10,0% 11,0% 9,0% 35 bp

AA/Aa2 0,5% 1,1% 0,5% 45 bp

A/A2 0,5% 0,8% 0,6% 60 bp

BBB/Baa2 1,2% 1,9% 0,8% 100 bp

BB/Ba2 1,3% 1,8% 1,1% 400 bp

First Loss 4,1% 7,0% 3,1% 1600 bp One important advantage of using the KfW platform is the zero risk weighting of KfW. Because of the zero risk weighting, the credit default swap with KfW significantly reduces the capital the originator has to hold for the portfolio after the synthetic securitisation. If the originator would use a different bank credit default swap counterparty, the risk weight on the Super Senior credit default swap would be 20% under Basel 1 (assuming that mezzanine tranches are fully funded and that the first loss piece is retained by the originator). Therefore, the advantage from the originator’s point of view is: Under Basel 1: Super Senior * (20%-0%) * 8% * Cost of Capital (net of Capital Benefit) If we assume the (Net) Cost of Capital is 9% the advantage amounts to:


12 bp 11 bp 12 bp (for amortising pools, the Super Senior Swap amortises and hence the advantage will be reduced significantly after some time) Under Basel 2: For banks that use the standardised approach, the effects will be about the same as under Basel 1 (KfW is zero risk weighted, both the senior tranches of a securitisation transaction and a typical bank swap counterparty with a rating of AAA to AA- are 20% weighted) Though KfW´s zero risk weight will still apply, for a bank that uses the internal ratings based approach the situation will change. The risk weight of the Super Senior Swap as the most senior tranche is reduced to 7% (AAA rated tranche with a granular pool), so there is no economic incentive to hedge it with a counterparty with a higher risk weighting. Using KfW will still have some benefit albeit much smaller than before: Super Senior Swap * (7%-0%) * 8% * Cost of Capital (net of Capital Benefit)


4 bp 4 bp 4 bp It should be noted that KfW does not retain the economic risk of the portfolio. Usually, the first loss is retained or sold by the originator, the mezzanine tranches are sold to other

AMTE Final Report


investors and KfW executes a CDS on the Super Senior with a suitable counterparty (20% weighted OECD bank). As a consequence, KfW has to hold capital against counterparty risk. KfW charges a commercial fee for its services and, in particular, for the capital commitment, and this fee must be subtracted from the benefits mentioned above. Since these benefits depend on the originator’s Cost of Capital, it is quite difficult to quantify the net effect (it will be substantial for a bank with high Cost of Capital, but negligible for a bank with low Cost of Capital). To summarise, there seems to be an advantage for some originators to use the PROMISE platform. However, similar to the EIF case, the advantage depends on the originator’s internal Cost of Capital. Therefore, maybe other “qualitative” factors are more important and may induce substantial cost savings for originators:

The standardisation of the PROMISE structure (use of KfW certificates as collateral, documentation etc.) leads to lower transaction costs (Rating agencies, lawyers etc.). Obviously, this effect is more important for small pool sizes where transaction costs are higher. KfW´s experience shows that transaction costs can be 30%-50% lower for PROMISE deals compared to other “non platform” deals. So for a small transaction (€500 Mln. Pool size) the savings will probably amount to 2 or 3 basis points.

Moreover, some observers note that the spreads on the mezzanine notes

seem to be lower for PROMISE deals (surely, one reason is the use of KfW certificates as collateral, but it is also reasonable to assume that the profile of the platform and the transparency is relevant for the investors). Again, this can reduce the costs of a transaction by another 1 or 2 basis points.

The PROMISE programme has contributed to a more rapid development of

the German and European SME securitisation market. It has helped to make more information on SMEs and SME credit risk available to market participants. The rating agencies as well as investors are now able to assess the risks of SME loans and their performance and devote resources to research and monitoring. Moreover, the continuous deal flow induced by PROMISE is important, because it helps to broaden the investor community and thus improve market liquidity (and reduce the liquidity premium for SME CLO tranches). Over time it may also stimulate the securitisation of other “sub asset classes” such as SME mezzanine loans. Once investors are familiar with the specifics of SME securitisations, have built up corresponding research capabilities and have accumulated positive experiences with originators, they will be prepared to invest in more “exotic” assets.

Last but not least, the platform with its standardised features has helped to

reduce the execution time for originators (in particular, for repeat issuers). This will also lead to substantial cost savings.

AMTE Final Report


3 Standardisation of SME Securitisation Transactions The AMTE Working Group on SME securitisation has developed a standard format of data to help banks prepare for transactions and for ease of reporting. Based on the different requirements for origination and monitoring, the workshop focuses on two specific aspects of a transaction. The first aspect relates to the standardisation of transactions through the originators’ databases usually required, which aims to develop a consistent SME framework and a standard set of quantitative information required by rating agencies. The second aspect applies to the standardisation of investors’ information, which aims to develop a consistent set of information for transaction management phase and for investor reports.

3.1 Standardised Originator’s Data required for an SME securitisation

By nature, SME portfolios are heterogeneous and it is common to observe large discrepancies in default characteristics and securities within the SME asset class. Besides, the client data may not be available on an electronic format and originating banks have difficulties in assembling consistent portfolio data, which does not facilitate the portfolio risk analysis. From a risk analysis standpoint, there is a clear distinction between granular and non-granular portfolios. The former will be analysed with a standard ABS rating methodology requiring, inter alia, historical data of defaults whereas the latter will require individual data from financial statements and is more consistent with a CDO rating methodology. The border between the approaches depends on the homogeneity and number of underlying assets. To give a proxy, a portfolio of less than 1,000 exposures will be considered as non-granular. In addition, common to both granular and non-granular pools, a description of the originator, its origination / marketing process / organisation and its credit policy / internal score system is included in the qualitative due diligence and is not presented in the document. The standard sets of data detailed in Annex can eventually be adapted on a case by case basis with the originator specificities.

3.1.1 Non Granular Portfolio

For non granular portfolios, due to the limited number of exposures, a standard ABS approach can not be performed and the risk analysis performed by rating agencies will be done at the obligor level, based on each individual rating. This rating will be either derived

AMTE Final Report


from a mapping of the originator’s credit scoring system or by using the rating agencies’ country specific credit models based on selected financial data of borrowers. In addition to the individual rating, the static data to be provided on a name by name basis by an originator for a SME securitisation of a non granular portfolio are presented in Annex 6.3.1.

3.1.2 Granular Portfolio

In the case of a sufficient granular and homogeneous pool of assets, an ABS rating methodology will be performed in addition to the usual qualitative due diligence. The ABS approach will be based mainly on satisfactory (i) historical data provided by the originator and (ii) detailed information on the portfolio to be securitised. 3.1.2.1 Static Data The static data set corresponds to the snapshot of the portfolio containing the SME loans to be securitised. It will be used to build distribution tables of the eligible portfolio. The static data to be provided by an originator for a SME securitisation of a granular portfolio are similar to the data required for a non granular portfolio and are presented in Annex 6.3.1. 3.1.2.2 Historical Data In order to be as much efficient as possible, SME securitisation requires series of historical data over a long time period. It consists in tables for gross defaults, recovery rates, prepayment rates and delinquency rates. The historical data to be provided by an originator for a SME securitisation of a granular portfolio are presented in Annex 6.3.2.

3.2 Standardised Investor Report for an SME securitisation For securitisation transaction and particularly with the SME asset class, investors need to closely monitor the performance of the portfolio. The risk appreciation is paramount for investors’ confidence and a standardised investor report will help them to feel comfortable with a transaction. Based on discussions among group members and opinions gathered from investors, the AMTE working group has built a template of a standardised investor report to be used in a SME securitisation transaction. The investor report contains information allowing monitoring the transaction evolution, from a summary of the portfolio characteristics and the trigger levels to a summary of the notes to be amortised. The investor report proposed by the AMTE working group is a template and can be adapted in accordance with the specificities of the transaction.

AMTE Final Report


For example, investors would like to have more often information about the breakdown of the securitised portfolio

by industrial sectors, by geographical (region) and, by turnover range.

The standardised investor report to be produced for a SME securitisation is presented in Annex 6.4.

AMTE Final Report


4 Achieved consensus and Recommendations

4.1 Increasing efficiency of public sector intervention by catering the originators’ needs

The SME lending market is facing some regulatory challenges with the Basel II implementation and its impact in terms of further growth is very difficult to assess due to the heterogeneity of the SME asset class. However, it is apparent that public sector activity has been successful in stimulating SME securitisation. Indeed, the success of recent issues can be attributed to the role of public sector agencies as demonstrated by the issuance volume in the countries where incentive programmes have been established (approximately 60% of SME European securitisation has occurred when cost saving enhancements from public sector agencies are available). In the last few years, SME loan portfolios were securitised in a number of European countries, amongst others in Germany, Spain, the UK, Switzerland, Portugal, Italy, the Netherlands, Poland, Finland and the Czech Republic. Support as deal facilitators by a number of public sector bodies (e.g. EIF, KfW and the Spanish FTPYME programme) have in this context helped to develop the market. But despite significant achievements, there is a strong case that the market for securitisation of SME loans is not developing as fast as desired. E.g., the share of SME loans which were securitised compared to the size of existing SME loan books is rather low. Reasons for this are manifold. One other obstacle could be that SME loans are not at all a homogenous class but are diverse. As a consequence, banks as well as investors treat this asset class with some caution. Therefore, the market for securitising SME loans needs more vitality, and public sectors could play an active role in supporting SME securitisation. From a policy standpoint, it will be especially important to accelerate the building of a broader basis for the securitisation of more “plain vanilla”, “easier to securitise” SME loans (like senior secured or unsecured lending to SMEs with an internal rating at or close to investment grade). A mature securitisation market is a precondition for the extension of the range of enterprises which are suitable for securitisation – i.e. smaller SMEs and SMEs with non-investment grade ratings. The benefit of more mature and specialised markets can nowadays be observed in those countries in which SME securitisation has already gained a certain momentum and where more sophisticated transactions take place. Notwithstanding, even in these countries, the SME Market is not as far developed as for other asset classes. Looking at the role of public sector support in more detail, the following starting points can be identified to overcome the current difficulties accompanying SME securitisation:

Due to its complex nature, securitisation generates transaction costs. Especially for smaller banks, costs of securitisation can be prohibitively high. Public sector support via the standard platforms can reduce these costs considerably: Standardisation and repeated transactions allow service

AMTE Final Report


providers like rating agencies, legal advisors and investment banks to work more efficiently as they become familiar with the details of the platform. Public platforms can thus exploit economies of scale, and securitisation can become economically more attractive to a wider range of potential market participants. The cost saving argument is of special importance for originators who conduct their first transaction and for originators with smaller portfolios.

When standardised platforms require a high level of quality, with respect to reporting standards, this sends a positive signal to investors and contributes to liquidity. Successful examples in this context are KfW´s PROMISE platform and the Spanish FTPYME-Program, which both contributed decisively to the securitisation of SME loans.

A further starting point for public support is to act as risk takers. Precisely,

public entities invest in subordinated tranches. This support is particularly necessary in transactions which are difficult to securitise, e.g. transactions with new asset classes and/ or portfolios with low granularity. Public investment enhances the attractiveness of the whole transaction, as investors feel more comfortable with participation of key investors. The public support thus contributes as a catalyst to the creation of a liquid secondary market. Furthermore, public investment yields high leverage, as the volume of the transaction is large compared to the money invested by the public risk taker.

In this context, also the support of the EU is of major importance to give more momentum to market creation. Within the CIP (Competitiveness and Innovation Framework) framework, a “Securitisation Guarantee window” is being discussed, which would issue guarantees for junior and/or subordinated tranches of SME backed securitisations. The rising support of the EU documents the acknowledgement that securitisation is an effective means to promote access to finance by European SMEs.

Public support by the EU or other public entities can also be very helpful in countries in which the market for securitisation is underdeveloped, e.g. in Eastern Europe. In these countries the growth in the supply of loans to SME is often restricted by the resources of the domestic banks. Securitisation could allow to overcome these limits provided the risk that securitisation can be seen as “by-passing” limits imposed by Regulators and IMF has been addressed.

AMTE Final Report


4.2 Promotion of standardised data

The heterogeneity issue of SME portfolios has been raised and a move towards a greater standardisation of data is likely to develop further this asset class. Moreover, financial statements transparency is essential in the efficiency of portfolio selection process and should be promoted in order to improve risk analysis and therefore investors’ appetite. Based upon discussions among group members, the AMTE working group has built a standard format for originators’ data and investors’ reporting. In addition to these templates, the AMTE working group recommends the following solutions to reach the level of standardisation required:

Data transparency improvement through financial disclosure and individual electronic data to be gathered and monitored with an annual frequency at least. The last three years’ financial statements of the borrower are often required in the case of a non granular portfolio.

Identification of consistent SME portfolios in the originator’s database using

more accurate criteria (e.g. Basel II definitions) and other key parameters such as maturity, amortisation type and industry sector. The type of security used for a SME loan should also be clearly determined and valued as it drives the recovery rate assumption, which has a high sensitivity on the tranching.

Internal scoring system enhancement and implementation of a mapping with

rating agencies credit ratings allowing more efficient portfolio analysis.

AMTE Final Report


5 Action Plan

5.1 Communication to third parties Circulation of the report to relevant parties. In addition, the group wishes to create a dialogue with entities influent on the topic, such as:

CESR ECB EFAMA European Commission FSA National banking federations (France, Germany, Spain) Associations dealing with securitisation such as the European Securitisation

Forum

5.2 Report promotion: Participation in future events List of coming events where the report will be presented:

Euro Debt Market Congress, November, 17th 2006, Frankfurt

Euromoney Paris Forum, November, 27th and 28th 2006, Paris

http://www.euromoneyconferences.com/

The Finance Dublin International Securitisation Conference 2006, November, 28th and 29th 2006, Dublin

http://www.financedublin.com/conference/home.php

5.3 Creation of a barometer

Different means to assess the impact of the recommendations built:

repeat the bank survey every 12 or 18 months

create a survey dedicated to investors to get their views on the SME asset class

AMTE Final Report


6 Annexes Annex 6.1: AMTE Working Group Composition Annex 6.2: Results of the AMTE Pan European Survey Annex 6.3: Standardised Originator’s Data required for an SME securitisation Annex 6.4: Standardised Investor Report for an SME securitisation

AMTE Final Report


Annex 6.1: AMTE Working Group Composition

Members: Corinne Lambert AMTE Valérie Blanchin AMTE Nathalie Esnault Calyon Romain Munera CAAM Olivier Amblard EIF Alessandro Tappi EIF Fabrice Garnier HSBC Maxime Stevignon JP Morgan Dr. Dieter Glüder represented by Dr. Omar Ranné KfW Anke Brenken KfW Cornelia Lamers KfW Bruno de Pampelonne Merrill Lynch Michel Madelain Moody’s Henry Charpentier Moody’s Philippe Madar Société Générale CIB David Gravier Société Générale CIB Niccolo Biancheri Société Générale CIB Based upon the decision of the participants, in order to enhance efficiency and reflect their natural interest, the workshop was divided into 2 groups, Workshop 1: public bodies and SME securitisation

Members: AMTE, Calyon, EIF, JP Morgan, KfW (Rapporteur), Merrill Lynch, Moody’s, Société Générale

Goal: formulate proposals geared at maximising the impact, efficiency and

catalytic effect of public sector intervention in SME securitisation Workshop 2: standardisation

Members: AMTE, CAAM, EIF, HSBC, JP Morgan, Moody’s, Calyon, Société Générale (Rapporteur)

Goal: develop a standard format of originators’ SME loans databases to help

banks prepare for transactions

AMTE Final Report


Annex 6.2: Results of the AMTE Pan European Survey Questions regarding portfolio of SME loans How would you qualify the level of diversification of your SME loans portfolio? 1= Good 2= Average 3= Insufficient Overall

Number %

"1" - Good 29 66%

"2" - Average 14 32%

"3" - Insufficient 1 2%

Total 44 100% In terms of exposure to single names

Number %

"1" - Good 35 80%

"2" - Average 8 18%


Total 44 100% Geographically

Number %

"1" - Good 24 55%

"2" - Average 18 41%


Total 44 100% By sector

Number %

"1" - Good 25 57%

"2" - Average 16 36%


Total 44 100%

AMTE Final Report


Present and future SME lending Do you feel constrained in your SME lending by any of the following factors? Risk exposure

Number %

Yes 15 34%

No 29 66%

Total 44 100% Regulatory capital weighting

Number %

Yes 12 27%

No 32 73%

Total 44 100% Concentration

Number %

Yes 10 23%

No 34 77%

Total 44 100% Do you plan to increase SME lending in the coming years?

Number %

Yes 42 95%

No 2 5%

Total 44 100% Would you increase SME lending if you could benefit from: Risk transfer and liberation of credit lines in a cost efficient way?

Number %

Yes 36 82%

No 8 18%

Total 44 100% Release of regulatory capital in a cost efficient way?

Number %

Yes 28 65%

No 15 35%

Total 43 100%

AMTE Final Report


Perception and knowledge of securitisation and public sector initiatives relating to the latter Have you previously securitised assets in general?

Number %

Yes 20 45%

No 24 55%

Total 44 100% Have you planned to securitise SME loans?

Number %

Yes 19 43%

No 25 57%

Total 44 100% Are you aware of any public initiatives aiding SME securitisation?

Number %

Yes 14 32%

No 30 68%

Total 44 100% If you plan on using, or have already used SME securitisation, what advantages do you identify for your bank? (1= “highly pertinent”, 4= “not pertinent”). Can help increase liquidity of my Balance Sheet

Number %

"1" 8 27%

"2" 7 23%

"3" 10 33%

"4" 5 17%

Total 30 100% Can help manage SME risk

Number %

"1" 6 20%

"2" 15 50%

"3" 4 13%

"4" 5 17%

Total 30 100%

AMTE Final Report


Provides cost-effective funding Number %

"1" 7 23%

"2" 9 30%

"3" 10 33%

"4" 4 13%

Total 30 100% Provides cost-effective regulatory capital relief

Number %

"1" 7 23%

"2" 9 30%

"3" 9 30%

"4" 5 17%

Total 30 100% Whether or not you have used, or simply plan on using, SME securitisation, what do you view as the main difficulties tied to such transactions? (1= “highly pertinent”, 5= “not pertinent”). Lack of sufficient data/depth of information required

Number %

"1" 11 28%

"2" 12 31%

"3" 9 23%

"4" 4 10%

"5" 3 8%

Total 39 100% The size of the portfolio is too small

Number %

"1" 9 23%

"2" 8 20%

"3" 6 15%

"4" 9 23%

"5" 8 20%

Total 40 100% Portfolio is too concentrated on names or industries

Number %

"1" 2 5%

"2" 4 11%

"3" 9 24%

"4" 10 26%

"5" 13 34%

Total 38 100%

AMTE Final Report


Availability of IT systems to produce necessary data Number %

"1" 4 11%

"2" 11 29%

"3" 9 24%

"4" 9 24%

"5" 5 13%

Total 38 100% Costs of securitisation are too high

Number %

"1" 6 16%

"2" 15 41%

"3" 10 27%

"4" 4 11%

"5" 2 5%

Total 37 100%

AMTE Final Report


Annex 6.3: Standardised Originator’s Data required for an SME securitisation

6.3.1 Static Data for both Non Granular and Granular Portfolio

Field Number Field Name Field Definition

1 Current Date Date at the time of data extraction

2 Company Identification Number The company identification number determined by the country's regulator

3 Company Group name The company group name if the company is a subsidiary of a larger group

4 Company Recording Date Date at the time of the company's first identification to the originator

5 Country Code Country code or country name of the company / subsidiary to which the loan has been granted

6 Industry Sector Industry sector corresponding to the main business activities of the company

7 Geographical Region / Postcode Geographical region as defined by the country's administration or postcode of the company's headquarters

8 Company score Company score or rating if any, set by the originator based on its internal scoring system

AMTE Final Report


Field Number Field Name Field Definition

9 Initial Date Date at the time the loan has been granted

10 Initial Outstanding Balance Initial outstanding balance of the loan at the initial date

11 Current Outstanding Balance Current outstanding balance at the current date

12 Currency Currency of the loan

13 Maturity Date Maturity Date of the loan defined at inception

14 Fixed Interest Rate Fixed interest rate compounded annually used to calculate the interest payment of the loan

15 Floating Interest Margin Floating interest margin over the interest rate index if the loan has a variable interest rate

16 Interest Rate Index Interest rate index or market benchmark rate used as floating interest rate basis

17 Payment Frequency Payment frequency of instalments during the loan amortisation

18 Amortisation Type Linear / Bullet / Specific Amortisation

19 Loan Seniority Rank of the loan in the priority order of payment (Senior Secured/Unsecured, Subordinated…)

20 Loan Security Type Nature of the loan security (mortgage, pledge…)

21 Loan Collateral Type Nature of the loan collateral (real estate, securities…)

22 Loan-To-Vaue Ratio of the loan outstanding amout to the value of the guarantee

23 Originator Loan Share Originator's share of the loan securitised

AMTE Final Report


6.3.2 Historical Data for a Granular Portfolio Cumulated Gross Default Rate For a generation of loans (being loans originated during the same quarter), the cumulative gross default rate in respect of a month is calculated as the ratio of:

- the cumulative defaulted amount (the total outstanding amounts of the loans that have defaulted) recorded between the month when such loans were originated and the relevant month, to

- the initial outstanding amount of such loans

The definition of the default used by the originator has to be provided.

AMTE Final Report


Number of quarters after origination

Quarter of

Origination

Originated

Amount1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

2001 - Q2 350 120 000 0.0% 0.5% 1.7% 3.2% 4.1% 4.7% 5.1% 5.2% 5.3% 5.4% 5.6% 5.6% 5.6% 5.8% 5.8% 5.8%

2001 - Q3 401 740 000 0.0% 0.3% 1.3% 2.2% 2.9% 3.4% 4.4% 4.3% 4.4% 4.6% 4.8% 5.1% 5.1% 5.2% 5.2%

2001 - Q4 398 070 000 0.0% 0.5% 2.0% 3.7% 4.7% 5.4% 5.9% 6.0% 6.1% 6.2% 6.4% 6.4% 6.4% 6.6%

2002 - Q1 304 460 000 0.0% 0.4% 1.6% 2.9% 3.8% 4.3% 4.7% 4.8% 4.8% 4.9% 5.1% 5.1% 5.1%

2002 - Q2 349 340 000 0.0% 0.3% 1.4% 2.3% 3.1% 3.6% 4.7% 4.6% 4.6% 4.9% 5.0% 5.3%

2002 - Q3 346 150 000 0.0% 0.3% 1.4% 2.4% 3.1% 3.5% 3.9% 4.0% 4.1% 4.2% 4.9%

2002 - Q4 361 740 000 0.0% 0.3% 1.0% 1.8% 2.4% 2.5% 3.1% 3.2% 3.5% 4.0%

2003 - Q1 295 420 000 0.0% 0.3% 0.9% 1.6% 2.3% 2.6% 2.8% 3.0% 3.1%

2003 - Q2 378 270 000 0.0% 0.2% 0.9% 1.4% 1.8% 2.1% 2.2% 2.4%

2003 - Q3 393 980 000 0.0% 0.3% 0.9% 1.5% 1.5% 1.6% 1.7%

2003 - Q4 436 130 000 0.0% 0.2% 0.8% 1.0% 1.0% 1.3%

2004 - Q1 391 170 000 0.0% 0.3% 0.7% 0.9% 1.4%

2004 - Q2 435 430 000 0.0% 0.2% 0.2% 0.3%

2004 - Q3 394 170 000 0.0% 0.2% 0.3%

2004 - Q4 422 290 000 0.0% 0.1%

2005 - Q1 199 620 000 0.0%

AMTE Final Report


Cumulated Recovery Rate For a generation of defaulted loans (being loans defaulted during the same quarter), the cumulative recovery rate in respect of a month is calculated as the ratio of:

- the cumulative recoveries recorded between the month when such loans were defaulted and the relevant month, to

- the gross defaulted amount of such loans The definition of the timing and the amount of the recovery used by the originator has to be provided.

Number of quarters after default

Quarter of

Default

Defaulted

Amount1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

2001 - Q2 15 900 000 0.0% 53.1% 55.8% 58.5% 61.2% 63.9% 66.6% 69.3% 72.0% 74.7% 77.5% 80.2% 82.9% 85.6% 88.3% 91.0%

2001 - Q3 17 580 000 0.0% 52.8% 55.1% 57.5% 59.8% 62.2% 64.6% 66.9% 69.3% 71.6% 74.0% 76.4% 78.7% 81.1% 83.4%

2001 - Q4 18 220 000 0.0% 47.4% 50.9% 54.3% 57.7% 61.2% 64.6% 68.0% 71.5% 74.9% 78.3% 81.8% 85.2% 88.6%

2002 - Q1 17 040 000 0.0% 52.8% 55.0% 57.1% 59.2% 61.4% 63.5% 65.7% 67.8% 69.9% 72.1% 74.2% 76.4%

2002 - Q2 19 540 000 0.0% 53.1% 56.8% 60.6% 64.3% 68.0% 71.7% 75.4% 79.1% 82.9% 86.6% 90.3%

2002 - Q3 19 780 000 0.0% 45.3% 48.9% 52.6% 56.3% 60.0% 63.7% 67.4% 71.1% 74.7% 78.4%

2002 - Q4 21 120 000 0.0% 45.4% 49.3% 53.2% 57.1% 61.0% 64.9% 68.8% 72.7% 76.6%

2003 - Q1 22 620 000 0.0% 46.8% 51.2% 55.5% 59.9% 64.3% 68.6% 73.0% 77.3%

2003 - Q2 21 800 000 0.0% 54.2% 58.1% 62.1% 66.0% 70.0% 73.9% 77.8%

2003 - Q3 23 520 000 0.0% 60.1% 65.2% 70.3% 75.3% 80.4% 85.5%

2003 - Q4 20 240 000 0.0% 56.1% 62.9% 69.6% 76.4% 83.1%

2004 - Q1 18 500 000 0.0% 62.8% 71.1% 79.3% 87.6%

2004 - Q2 18 160 000 0.0% 56.8% 71.3% 85.8%

2004 - Q3 17 920 000 0.0% 59.7% 93.8%

2004 - Q4 17 500 000 0.0% 45.5%

2005 - Q1 17 680 000 0.0%

AMTE Final Report


Prepayment Rate At a given month, the annual prepayment rate (APR) is calculated from the monthly prepayment rate (MPR) according to the following formula:

APR = 1 - ( 1- MPR )^12 The monthly prepayment rate (MPR) is calculated as the ratio of:

- the outstanding principal balance of all loans prepaid during the month, to

- the outstanding principal balance of all loans (defaulted

loans excluded) at the beginning of the same month

Month Oustanding

2001 - 06 1 706 200 000

2001 - 09 1 739 050 000

2001 - 12 1 732 570 000

2002 - 03 1 752 440 000

2002 - 06 1 785 680 000

2002 - 09 1 824 000 000

2002 - 12 1 873 380 000

2003 - 03 1 874 050 000

2003 - 06 1 919 470 000

2003 - 09 1 985 690 000

2003 - 12 2 079 310 000

2004 - 03 2 148 850 000

2004 - 06 2 240 430 000

2004 - 09 2 292 010 000

2004 - 12 2 356 990 000

2005 - 03 2 350 580 000

12.0%

10.7%

12.8%

9.8%

11.4%

11.4%

13.4%

12.4%

13.3%

12.9%

14.6%

12.8%

13.5%

15.0%

11.8%

13.3%

Annual Prepayment Rate

AMTE Final Report


Delinquency Rate At a given month, the delinquency rate is calculated as the ratio of:

- the outstanding principal balance of all delinquent loans, to

- the outstanding principal balance of all loans (defaulted

loans excluded) at the same cut-off date

Month 1 Month 2 Months 3 Months 4 Months 5 Months 6 Months

juin-01 1.3% 0.6% 0.3% 0.1% 0.1% 0.1%

juil-01 1.2% 0.5% 0.2% 0.1% 0.1% 0.1%

août-01 1.0% 0.6% 0.2% 0.1% 0.1% 0.1%

sept-01 1.3% 0.6% 0.3% 0.2% 0.1% 0.1%

oct-01 1.4% 0.6% 0.3% 0.2% 0.1% 0.1%

nov-01 1.0% 0.6% 0.3% 0.2% 0.1% 0.1%

déc-01 0.9% 0.5% 0.2% 0.1% 0.1% 0.1%

janv-02 1.5% 0.6% 0.2% 0.1% 0.1% 0.1%

févr-02 1.4% 0.5% 0.4% 0.1% 0.1% 0.1%

mars-02 1.3% 0.5% 0.2% 0.1% 0.1% 0.1%

avr-02 1.2% 0.4% 0.2% 0.1% 0.1% 0.0%

mai-02 1.1% 0.4% 0.2% 0.1% 0.1% 0.1%

juin-02 1.1% 0.4% 0.1% 0.1% 0.0% 0.0%

juil-02 1.1% 0.3% 0.1% 0.1% 0.0% 0.0%

août-02 1.0% 0.3% 0.1% 0.1% 0.0% 0.0%

sept-02 1.1% 0.4% 0.2% 0.1% 0.0% 0.0%

AMTE Final Report


Annex 6.4: Standardised Investor Report for an SME securitisation

Investor Report Issue Date

Issue Date

Accrual Period [Start and include]

Actual Number of Days

Reference Date

Report Date

Calculation Date

Revolving Period YES/NO ?

Acceleration Event YES/NO ?

Amortisation Event YES/NO ?

Date and Transaction Status Information

AMTE Final Report


Original Current Legal Final Initial Current Rating

Class Balance % of Total Balance % of Total Maturity Rating Rating Review

Senior CDS (*) 1 425 000 95.0% 865 000 92.0% sept-15 Aaa/AAA Aaa/AAA YES/NO ?

Class A+ (*) 7 500 0.5% 7 500 0.8% sept-15 Aaa/AAA Aaa/AAA YES/NO ?

Class A 15 000 1.0% 15 000 1.6% sept-15 Aa2/AA Aa2/AA YES/NO ?

Class B 9 000 0.6% 9 000 1.0% sept-15 A3/A- A3/A- YES/NO ?

Class C 18 000 1.2% 18 000 1.9% sept-15 Baa3/BBB- Baa3/BBB- YES/NO ?

Class D 9 000 0.6% 9 000 1.0% sept-15 Ba1/BB+ Ba1/BB+ YES/NO ?

Class E 6 000 0.4% 6 000 0.6% sept-15 Ba3/BB- Ba3/BB- YES/NO ?

Class F 3 000 0.2% 3 000 0.3% sept-15 B2/B B2/B YES/NO ?

Class G 7 500 0.5% 7 500 0.8% sept-15 NR/NR NR/NR YES/NO ?

Total 1 500 000 100.0% 940 000 100.0%

Key Transaction Data

Notes Summary (Amounts are in ! Mln)

(*) for a synthetic transaction Default Ratio

Cumulative aggregate Principal Outstanding Balance of all Purchased Receivables became Defaulted Receivables from Closing Date

Aggregate Principal Outstanding Balance of all Purchased Receivables on Closing Date

Default Trigger Level for Amortisation Event at the Relevant Calculation Date

Default Trigger Level for Acceleration Event at the Relevant Calculation Date

AMTE Final Report


Delinquency Ratio

Overdue Principal Outstanding Balance of all Purchased Receivables which are Delinquent Receivables

Performing Receivables Principal Balance

Delinquency Ratio Trigger Prepayment Rate

Cumulative aggregate Prepayments of the last Collection Period

Aggregate Principal Outstanding Balance of all Purchased Receivables on Closing Date Summary of Portfolio Characteristics

At closing At reference Date

Number of Loans

Number of Obligors

Minimum Loan Size

Maximum Loan Size

Average Loan Size

Outstanding Balance % out of total Originator's Pool

Outstanding Balance % out of Securitised Pool

Outstanding Balance (in ! Mln)

Average Outstanding Balance per Contract (in ! Mln)

AMTE Final Report


At closing At reference Date Trigger levels

if any

Receivables Secured by First Ranking Real Security

Weighted Average Loan to Value of all SME loans benefiting from a First Ranking Real Security

Loans unsecured or guaranteed only by a Generic Security

Weight of Receivables with Fixed Interest Rate

Weighted Average Interest Rate if Fixed (%)

Weighted Average Margin if Floating (%)

Weighted Average Spread of SME loans

Max Weight of All Purchased Receivables of a Single Borrower

Weight of Top Ten Borrowers Purchased Receivables

Weight of the Non-Amortising Receivables with Remaining Term > 1 year

Weight of Receivables with Quarterly (or less) Interest Instalments

Weighted Average Original Term (in months)

Weighted Average Remaining Term (in months)

Weighted Average Seasoning (in months)

AMTE Final Report


Cash Flows and possible Replenishment Amounts

Collection Period

Purchase Condition

Interest Collections

Interest in respect of late payments

Amounts to be Received under the Hedge Agreement

Recoveries from Defaulted Receivables

Collections on Overdue Principal Instalments

Interest accrued on the Transaction Accounts Overdue Principal Instalments

Principal outstanding balance of Receivables which became defaulted

less the Principal instalments of of these receivables already taken into account on previous Calculation Dates

Revenue Shortfall (if any) calculated on the last Payment Date Receivables Principal Amortised Amount

Scheduled Principal Collections

Principal instalments prepaid

Principal outstanding balance of Receivables which became defaulted during the Collection Period

less the Principal instalments of these receivables already taken into account on previous Calculation Dates

Replenishment Amount if any

Excess Available Principal Amount

AMTE Final Report


Issuer Available Funds

Amounts standing to the credit of the Transaction Accounts

less amounts on the Hedge Collateral Account or any Witheld Amount

less amount on the Excess Available Principal Account if Purchase Condition = N

less the Minimum Cash Reserve Amount

Collections

Interest received in respect of Autorised Investments

Amount received from the Originator in respect of re-assignment of Receivables

Proceeds of sale of any Receivables under the Transaction Documents

Interest earned on the Transaction Accounts other than the Hedge Collateral Account

Amounts received by the Issuer under the Transaction Documents

Amounts to be received under the Hedge Agreement

AMTE Final Report


Relevant Priority of Payments

Senior Expenses + Issuer Management Fee

Issuer Expenses

Expense Account Required Amount

Servicer Fee

Payments to the Hedge Counterparty

Interest Amount due on Senior Notes

Purchase Price of Subsequent Receivables

Excess Available Principal Amount

Cash Reserve Required Amount

Subordinated Termination Payment to the Hedge Counterparty

Any other amounts due under the Transaction Documents

Interest Amount due on Junior Notes

Interest and principal under the Subordinated Loan

Additional Return

AMTE Final Report


Hedge Agreement

Notional Amount

3M Euribor

Amounts to be received

Performing Receivables Principal Balance of Fixed Rate Loans

Swap Fixed Rate

Performing Receivables Principal Balance of Floating Rate Loans

Weighted average Euribor index rate

Amounts to be paid Cash Reserve

Minimum Cash Reserve Amount

Cash Reserve Required Amount

AMTE Final Report


Months after the Principal Interest Outstanding

Reference Date Instalments Component Component Balance

1 month

2 months

3 months

4 months

5 months

6 months

7 months

………

Collateral Level Information

Theoretical Amortisation Schedule assuming 0% prepayments and 0% defaults

AMTE Final Report


Months after the Principal Interest Outstanding

Reference Date Instalments Component Component Balance

1 month

2 months

3 months

4 months

5 months

6 months

7 months

………

Theoretical Amortisation Schedule in a base case scenario

Initial Rating Current Rating

Originator

Servicer

………

Third Parties Ratings

AMTE Final Report


Interest Rate Type At closing % of Total At reference Date % of Total

Floating

Fixed

Capped

Breakdown of the Pool Outstanding Balance by Interest Rate Type

Loan Type At closing % of Total At reference Date % of Total

Amortising

Revolving

Bullet

Breakdown of the Pool Outstanding Balance by Loan Type

Redemption Type At closing % of Total At reference Date % of Total

Direct Debit

………

Breakdown of the Pool Outstanding Balance by Redemption Type

AMTE Final Report


Frequency At closing % of Total At reference Date % of Total

Annual

Semi-annual

Quarterly

Monthly

Breakdown of the Pool Outstanding Balance by Payment Frequency

Financing Objective At closing % of Total At reference Date % of Total

Working Capital

Guarantee

………

Breakdown of the Pool Outstanding Balance by Financing Objectives

AMTE Final Report


Securities At closing % of Total At reference Date % of Total

Mortgage

Personal Guarantee

Banking Deposit

Pledge on shares…

………

Breakdown of the Pool Outstanding Balance by Securities

Sector At closing % of Total At reference Date % of Total

Aerospace & Defense

Air transport

Automotive

Electronics

Equipment leasing

Industrial Equipment

Insurance

Utilities

………

(*) Sectors of activities defined according to a Rating Agency split

Breakdown of the Pool Outstanding Balance by Sector of Activities (*)

AMTE Final Report


Region At closing % of Total At reference Date % of Total

Region 1

Region 2

Region 3

………

Breakdown of the Pool Outstanding Balance by Geographical Region

Turnover At closing % of Total At reference Date % of Total

< 1,000,000

1,000,000 <= < 5,000,000

5,000,000 <= < 10,000,000

10,000,000 <= < 20,000,000

20,000,000 <= < 30,000,000

30,000,000 <= < 40,000,000

40,000,000 <= < 50,000,000

Breakdown of the Pool Outstanding Balance by Turnover (in !)

AMTE Final Report


Internal Score At closing % of Total At reference Date % of Total

1

2

………

10

Breakdown of the Pool Outstanding Balance by Internal Rating

Borrower ID At closing % of Total At reference Date % of Total

1- Borrower 159

2- Borrower 16

3- Borrower 147

………

10- Borrower 278

Concentration: 10 biggest borrowers of the pool

AMTE Final Report


Number of Employees At closing % of Total At reference Date % of Total

< 10

10 <= < 20

20 <= < 50

50 <= < 100

100 <= < 150

150 <= < 200

200 <= < 250

Breakdown of the Pool by Number of Employees

Average Age At closing % of Total At reference Date % of Total

0 - 3

4 - 6

7 - 10

11 - 15

> 15

Breakdown of the Pool by Average Age of SME's (in Years)

AMTE Final Report


Relation Age At closing % of Total At reference Date % of Total

0 - 3

4 - 6

7 - 10

11 - 15

> 15

Breakdown of the Pool by Relation Age between the SME and the Originator (in Years)

Performance of the Underlying Pool Original Pool The tables presenting the original pool performance for a granular portfolio are included in the quantitative due diligence report. Please refer to the 2.2 historical data section of the Standardised Originator’s Data. Securitised Pool / Transaction Performance The tables presenting the actual performance of the securitised pool for a granular portfolio should be reproduced on the same basis than the tables for the original pool.

Supporting SME Financing using Securitisation...

Documents

Transcript of Supporting SME Financing using Securitisation...