Securitization in brief
14
info exchange
WHAT'S NEWS Issue 4 April 1996
There's been a lot of talk about it recently in the network.
It seems almost as if securitization is the new buzz word for the bank.
But what is it, how does it work, and who is doing it? London
Branch's expert Brian James provides a brief summary.
Brian James
WHAT EXACTLY IS
SECURITIZATION?
Basically, it's the repackaging of corporate
assets. What you do is take the raw
receivable or inventory and identify each
inherent risk. These identified risks are
then hedged or sold so that you end up
with a risk that is acceptable to the
international capital markets.
Securitization has major benefits for both
the bank and for corporate clients.
SUCH AS?
From the bank's point of view, the primary
benefit is the transfer of risk to third party
investors. This has the added advantage
that it is solvency efficiënt in that it
converts drawn assets into undrawn assets.
And if structured as a 364-day liquidity
facility, it will have no capital applied thus
converting margin into fee income. In
essence, securitization is a cost-competitive
product for the bank to offer its clients.
AND FOR THE CLIENT?
For our corporate clients, it has the benefit
of taking assets off balance sheet, thus
freeing up capital and improving gearing
ratios, or alternatively as a cost-competitive
source of financing, and a method of
diversifying funding sources. In addition, for
unrated corporates it means they can gain
access to highly efficiënt rated markets to
which they would not normally have entry.
LONDON IS A MAJOR CENTRE?
Certainly for Europe. There are around 44
banks with securitization teams based in
the City.
HOW HAVE YOU POSITIONED
RABOBANK?
We've done that in a number of different
ways. But I think probably one of the keys
is Magenta. This is our off-balance sheet
securitized vehicle which we established in
conjunction with Chemical Bank. It was
launched last November and, in fact,
we've just done our first Magenta deal
involving truck-lease receivables.
CAN YOU EXPLAIN EXACTLY WHAT
MAGENTA IS?
Essentially, Magenta is a complete, in-
place facility for financing any form of
assets, such as trade receivables or
inventory, initially through the commercial
paper markets out of the US. Through
Magenta, we have created a funding tooi
which is more flexible than any other
conduit in the market. That won't last for
long. But at least it keeps the lid on the
competition for the time being.
WHICH MARKETS ARE YOU
TARGETTING?
Every market in the sense that Magenta
has been established for bank-wide use. It
SECURITIZATION
Vanuit Londen wordt
sinds kort het produkt
'securitization' gevoerd.
Het gaat om overname van debiteuren
vorderingen en voorraden van bedrijven,
waarbij de diverse risico's in kaart worden
gebracht. Deze worden ten dele ingedekt of
verkocht, zodat een produkt overblijft dat
op de internationale kapitaalmarkt kan
worden aangeboden. Het voordeel voor de
bank is dat het risico aan derden wordt
overgedragen, terwijl wij klanten een
concurrerend produkt kunnen bieden. Voor
de klant betekent het een gunstigere
financiering, diversificatie van financierings
bronnen en het off-balance krijgen van
deze activa, waardoor ratio's verbeteren.
Securitization vindt plaats via Magenta,
opgericht met Chemical Bank. Securitization
kan vanuit Londen wereldwijd aan klanten
worden aangeboden. Een groot aantal
kantoren maakt hier al gebruik van.
has been designed with total flexibility to
suit any specific cliënt requirements. The
key route is direct marketing through to
corporates with whom we already do
business. In 1995, we saw significant
progress in Europe. Last year we did a
very attractive deal in the US with the
Chicago office - that was for Purina [see
What's News, 7/95]. We're also working
closely with corporate banking in Utrecht
and the teams in Italy, Belgium and Rabo
Popular in Madrid. We have also been
approached about possihilities in Australia
and New Zealand, and we have a
significant lead of business through
Chemical's worldwide origination
network. Essentially, Magenta has been
created to target anywhere in the world.
The concept behind it is that you can take
any asset from any jurisdiction then
securitize and fund it.
ANY JURISDICTION?
That is the current stage. In 1996, our
main objective is to get the branches'
account managers sufficiently familiar
with the product so they know when to
introducé it to solve specific cliënt
requirements. The emphasis will be on
introducing everyone in the network to
the product so they can start sourcing
opportunities. A lot of groundwork has
already been done. People understand it's
not just another way of dressing up the
same product. It is a very different
product. The corporates themselves also
understand this. In fact, you're now seeing
companies asking for it, certainly in the
UK and US, and across a large part of
Europe.
A VERY DIFFERENT PRODUCT?
Securitization is another value-added
product our people in the network can
offer their clients. If the cliënt is looking
for an off-balance sheet status, then
securitization is a real solution. And if you
have a corporate where you wouldn't
consider straight balance sheet lending,
then you can offer a structure in which the
credit is secured. It gives you more scope.
YOU ARE WORKING FOR THE
WHOLE NETWORK?
Absolutely. It's been slow to start, but it's
just a question of confidence building.
That's working now; Magenta has made a
significant difference. Almost everything
we are doing is for and with other
branches in the network. The way we see
our activity here in London is that we are
a product centre for the whole bank. We
will advise on possible structures or
anything else the account manager needs.
But the cliënt remains with the branch. We
believe that is the right way to do it.
