Atlantis
Securitization Program
10
securitization
WHAT'S NewS Issue 1 January 1998
Last month,a substantial NLG 10 billion securitization program known as
Atlantis was unveiled.This marked the first time that Dutch corporate loans have
been securitized - in this case mainly on the US market - and represented an
important first step in an ongoing process that will profoundly affect the way
we do business both internationally and domestically.
The strategy of securitizing our own
assets, first unveiled by executive board
chairman Herman Wijffels last February
and since strongly promoted by
managing board chairman Arthur
Arnold, might ultimately widen to
include mortgages, consumer credits and
other types of credit at the member bank
level. Since the bank has no outside
shareholders from whom to raise new
capital for credit growth, the
securitization strategy has been devised
as a means of improving our efficiency,
our capacity to do more business with
our target customers, and our ability to
earn enough from our working capital to
maintain our BIS ratios and bring our
return on solvency (ROS) to target levels.
POOLING ASSETS
Under an innovative structure devised by a
task force operating out of the London and
Utrecht branches, the securitization program
will make first-class securities available to
international institutional investors, via the
US short-term commercial paper market. A
pool of loan assets provided by our Utrecht
branch, and valued at NLG 10 billion, will
be refinanced by private placement with two
special-purpose companies. These companies
will in turn be funded by other, related
entities that will use the loans as collateral to
issue short-term USD commercial paper
using Goldman Sachs, Morgan Stanley and
Merrill Lynch as dealers. Finally, the
proceeds of this securitization will be
swapped back into Dutch guilders.
IN THE OFFERING
The issue will be offered in two tranches^
labelled A and B. The A tranche,
corresponding to some 94 percent of the
overall issue, will carry an A-1+ rating
from the Standard Poors agency, P-l
by Moody's P-l by Moody's, F-1+ by
Fitch IBCA, and D-1+ by Duff Phelps.
The B tranche, subordinated to the first,
carries a P-2/F-2/D-2 rating from
Moody's, Fitch IBCA and Duff Phelps
respectively. In order to achieve a
separate rating for these special purpose
companies, the bank has undertaken to
assume a first loss position of some two
to 2.5 percent. This will be deducted
from our Tier-1 capital - the equity of
the bank which is subject to mandatory
set-aside as a cover against any potential
losses.
FUNDING FUNDAMENTALS
Clearly, there is a short-term opportunity
cost involved in the whole business: the
funding of these assets, which no longer
falls under the banks' triple A rating, is
always more costly. But this is just one
side of a trade-off equation. Because
American-based investors will assume
much of the risk until now run by the
bank itself, we have substantially reduced
the solvency required to support the
Atlantis-related section of our overall loan
portfolio. This, in turn, will free up a net
of over NLG 450 million for use to
support fresh business. The resulting
higher volumes should bump up earnings
by a greater proportion than the short
term increase in funding costs. Thus, the
securitization program should be seen
primarily as one important way in which
we can counteract solvency-related
constraints on growth in order to better
service our customers in the future. There
is some scope for further securitization of
the corporate loan portfolio within the
Atlantis umbrella at some as-yet-
undetermined point in the future. (Any
eventual widening of the program to
include mortgages, consumer credits and
other types of credit at the member bank
level will be handled using other, purpose-
designed programs.) For Rabobank
International, parts of the New York and
London loan portfolios will be considered
for securitization in 1998, as will certain
trade finance receivables.
The securitization project is a good example of cross-border and cross-functional networking.
Key members of the Atlantis team include Brian James and Andy Coombs London, Aimee
McCormack in New York, plus, in Utrecht, from left to right in the upper row: Marin Boon,
Sandra van Campen, Cees de Vries, Eduard Sartonus, Kees Versteeg and Rob Mayenburg. From
left to right in the lower row: Rob Niesert, Nicolette Kral, Tjeerd de Vries, Pauline van Leeuwen,
Michiel Jansen, Nicole van Tuel, Marjolein Sol. Theo Hendriks is missing on this picture.
PRODUCT SPECTRUM
It is clear that further capabilities need to
be added to our overall product spectrum
- which is still largely dominated by loan
business - and that this will include
securitization and other sophisticated non-
commodity products. Progress in this field
is demonstrated by the Atlantis program,
