Dutch pension fund investor, PGGM, and Swedish pension fund, Alecta, have completed a €2.1bn credit risk-sharing transaction with German bank, Helaba.

It is the first transaction of its kind for Helaba; the bank was able to free up risk-weighted assets (RWAs) of around €800m for a reference portfolio of corporate loans amounting to approx. €2.1bn. This innovative transaction meets the required regulatory criteria of "significant risk transfer" (SRT compliance) and "simple, transparent, standardised" (STS compliance).

In a credit risk-sharing transaction, also known as on-balance-sheet securitisations, rather than selling any actual loans, default risks are synthetically transferred to investor(s). The contractual relationship between Helaba and its borrowers remains unaffected.

There were three tranches which referenced a corporate portfolio of €2.1bn, with Helaba holding the equity tranche (first loss) as well as the senior tranche. A special-purpose entity (SPE) provided Helaba with credit protection for the mezzanine tranche, which was funded by the SPE issuing credit-linked notes (CLNs) equivalent to the amount of the credit protection.

The CLNs were sold to PGGM and Alecta and Helaba acted as the originator and lead manager in the chosen transaction structure, which included additional support from Citi as structuring and placement agent. To support the administration and management of the transaction, a cutting-edge IT system from iconicchain was used, which largely automated the internal processes.

"We have ventured into new territory with this means of securitisation," Helaba CEO, Thomas Groß, said. He added: "This ground-breaking transaction clearly demonstrates that we have the capability to develop innovative products that enjoy widespread acceptance in the market".

PGGM head of credit and insurance-linked investments, Mascha Canio, said: “Investing in Helaba’s inaugural credit risk sharing transaction marks the addition of a new counterparty to the portfolio we manage on behalf of our client PFZW and provides further diversification given the unique client base of Helaba. Furthermore, the STS qualification achieved by the transaction testifies to Helaba’s desire to implement the highest standards in risk transfer, which PGGM strongly supports.”

Furthermore, Alecta head of fixed income and strategy, Tony Persson, said: “We welcome this addition to our growing portfolio of credit risk-sharing investments and are very happy to be adding a new risk-sharing relationship with Helaba. For Alecta the transaction offers a valuable source of credit diversification and an opportunity to benefit from Helaba’s specific client base. This fits well with the long-term strategy of our fund and will create value for our 2.6 million Swedish customers. We look forward to further grow our portfolio and see plenty of scope getting exposure to many different loan books and thereby providing additional capacity to lend to the real economy.”

Helaba was supported by SKS-Group and Deloitte, while Linklaters acted as Helaba’s legal advisor; Simmons & Simmons acted as legal advisor to PGGM and Alecta and Clifford Chance as legal advisor for Citi.

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