US FIRST
FOCUS 1997
14
securitization
What's News Issue 1 January 1997
Rabobarik's Chicago office, working closely with New York, last
month completed a USD 140 million loan securitization program
for AG Services, an important lowa-based supplier and financier
of erop inputs (such as fertilizers and seeds) which is a longtime
Rabobank customer.
David Mamo
Structured by David Mamo an Robert
Sarlis from the securitization group, as
well as by Elizabeth Hund and Brian
Klatt, who manage the AG Services
relationship out of Chicago, this deal
marks Rabobank's first securitization
mandate in the important US food and
agribusiness market. Securitization makes
it possible for the cliënt to finance its loan
assets off balance. It is accomplished by
setting up a special purpose company to
control the assets, and funding them by
issuing promissory notes on the market.
The promissory notes - short-term 90 or
120-day commercial paper offer
investors and rating agencies two
assurances.
GUARANTEED MARKET
First, there is a liquidity enhancement;
namely, the assurance that when the notes
fall due and must be rolled over, a market
is guaranteed. This liquidity enhancement
is being extended by Rabobank (and
syndicated by Ron Klein and Susan
Camus of New York). Secondly, there is a
credit enhancement guarantee against any
kind of loss exposure on the loans, which
is being extended separately by the New
York based CapMAC group.
LIMITING RISK
Such constructions are quite common for
finance companies and have been used
extensively by agricultural equipment
manufacturers. Now, in the dual role of
structurer and arranger of this deal,
Rabobank is looking to extend the format
into a number of further securitization
transactions. 'The AG Services deal is the
first of several similar transactions to be
closed in 1997,' says Elizabeth Hund. 'It is
an important example of Rabobank's
ability to add value to a relationship, and
to be compensated for this, while limiting
its commitment of capital and credit risk.'
ENHANCING VALUE
The preexisting two-year syndicated credit
facility agented for AG Services by
Rabobank is an exposure subject to
capital set-aside requirements. Under the
securitization program, there is no
solvency requirement and it is therefore
unnecessary to post capital with the
regulatory authorities. In addition to
lower all-in funding costs (in comparison
to a revolving line of credit), the
securitization will also provide AG
Elizabeth Hund
Services with increased borrowing
capacity and a program tenor of up to five
years. When the cliënt can segregate loan^j
from other assets on its balance sheet, it
can enhance the value of those assets.
SECURITIZATION
PROGRAM
Chicago zette samen met
New York een
securitization programma op van USD 140
min. voor AG Services, leverancier van o.a.
zaden en kunstmest. Dit eerste mandaat op
de belangrijke F&A markt in de Verenigde
Staten stelt de klant in staat, door het
opzetten van een special purpose company,
de leningen aan klanten off-balance te
financieren.
(continued from page 1
Wijffels has no shocking revelations to
make. 'Whatever happened to the classic
boom-bust characteristics of the US
economy? he asked. 'We are in an
unforeseen situation in this decade. The
models developed based on date from the
I960s, 1970s and 1980s seem irrelevant
to the actual reality today. And because
those models are fixed in our minds, we
have been systematically underestimating
interest rate development. Given the
current situation, it would almost appear
as if not only Europeans, but the whole
world is actually applying the Maastricht
Treaty criteria to their own economies.'
Referring back to his comment on
declining inflationary threats, he summed
up three potentially explanatory factors
that have created this type of environment
- many of which are aspects of
Maastricht. The first is strong wage ^P
restraint, not least through the decline in
trade union negotiating power. A second is
flexibilization of the labour force coupled
to ever-tougher competition which has led
to price restraint in corporates. The third
is the role of government. 'Increasingly,'
Wijffels stated, 'we are seeing governments
all over the world shift policy from
intervention to facilitation.'
Given all these factors, the bank stands by
its prediction of ongoing low interest rates
- and all the consequences this has for
capital markets. 'If our thinking is
correct,' he said, 'we will see a structural
short rate of around 3 rather than 6
percent, a long rate of 5 instead of 8
percent, and a return on shares of 9, not
12 percent. The equity markets are
currently expensive, but not over priced.jg^
For the Netherlands, Vision 1997 ^P
forecasts 3 percent economie growth
assisted by higher investment (5 against
2.25 percent in 1996) and rapid growth in
exports (5.25 against 3.75 percent).
