Atlantis, concluding stage II
securitization
in brief
Exactly one year ago, an ambitious program to securitize our assets was
unveiled. Dubbed Atlantis, its first stage saw the securitization of NLG 10 billion
worth of Dutch corporate loans on the US market. Stage two, recently conduded
despite market unrest, has been widened to indude loan portfolios of the New
York and London branches, valued at USD 3 billion and USD 4 billion respectively.
Diverse portfolio
Restructuring risk
Hidden data
Teamwork
Defining genomics
6 What'sNewS Issue 12 December 1998
Since the bank has no outside
shareholders to provide fresh capital
tor business growth, securitization has
been chosen as a means of heightening our
efficiency, widening our capacity to do
more business with target customers, and
improving our ability to earn enough froni
working capital to maintain BIS ratios and
bring our RoS to target levels. In essence it
involves restructuring our credit risk
exposure. The 50-strong Atlantis II team
has built on the innovative structure first
devised for the initial Atlantis: both make
first-class securities available to
international institutional investors via the
US short-term commercial paper (CP)
market. By offering these commercial
paper buyers an opportunity to invest in
the credit risk of the Atlantis portfolio, we
have obtained additional solvency relief
valued at some USD 300 million, thus
widening the scope of financial products
and solutions for customers.
The selection of the underlying portfolio
is based primarily on regulatory solvency
requirements, but other selection criteria
include currency, country of obligor, life
of the asset, and the industry involved.
The goal is to maintain a broad spread
of different assets and thus minimize
investor risk. Comprised of assets with
short maturity dates, the Atlantis II
portfolio will continuously change
composition. Uniquely, neither the
Rabobank loan portfolio nor any of the
enforcement rights associated with it
have been transferred to the special-
purpose company that has been
established as a vehicle for the
securitization. In other words, our assets
are not being sold but will remain on
our balance sheet for accounting
purposes. However, Atlantis will
participate in the funding and thus
obtain the right to receive from RI a sum
corresponding to future cash flows; i.e.
the interest and principal repayments on
loans. Thus, RI's income from the
securitized assets will equate, guilder for
guilder, with the net profit associated
with the original transactions. At the
same time, under solvency guidelines as
defined by the Dutch Central Bank, the
economie risk of RI's loan portfolio will
have been shifted to Atlantis.
The Atlantis program's total of USD 12
billion in assets make it one of the
world's largest participants on the US
commercial paper market. It is important
to note that the structure will not require
cliënt notification or acceptance. Since
the ultimate goal of the Atlantis exercise
is quite simply to restructure our credit
risk, and since the corporate loans being
securitized will stay on our balance sheet,
the program will have not effect our
debtors. AH rights to restructure,
renegotiate and 'work out' loans will
remain with our bank and our account
managers. In the event of any default
scenario, early redemption or other
unanticipated events, the relationship
between our bank and our counterpart,
which remains the customer, will be
unchanged. For instance, in the case of
default, we will liquidate acquired
collateral and, more generally, take
responsibility for all waivers, restruc
turing, and enforcement of rights in the
ordinary way.
What's more, the transaction has been
executed on a portfolio basis. This means
that neither the names of individual
companies whose loans make up the
portfolio, nor their financial particulars,
are being revealed to CP investors. They
are not even widely known within RI. Of
course, rating agencies have access to
such data, under conditions of the
strictest confidentiality, in the course of
their ordinary rating work. However,
this portfolio has been rated by the
agencies - Standard Poors, Fitch
IBCA, Moody's and Duff Phelps - on
the basis of historie loss analysis and
overall characteristics.
Atlantis II was a major team effort with a
task force operating out of the London,
New York, and Utrecht branches. It
included Marjan van der Weijden,
Graham Bruce, Sarah Mason, and James
Wakers, all of whom report to Jonathan
I.aredo, global head of credit trading.
Coördinators in London and New York
were Gordon Harris, Philip Gardiner and
Jacques Rijsenbilt. Despite market
turmoil, the team has ensured that all of
the AI+/PI paper was sold at favourable
rates. Part of an ongoing process, the
securitization program will continue
throughout 1999. Possible candidates
include trade receivables, loans from other
foreign branches, elements of the shipping
loan portfolio of Nedship, and part of De
Lage Landen's lease portfolio. More di-
versified forms will also be used: tapping,
for example, the bond, European medium
term note (EMTN), and euro markets.
Proving that our knowledge is at the
cutting edge of the latest discoveries,
London's pharmaceutical and health
care team recently held a seminar for
clients with a particular interest in
biotechnology. An intentionally limited
number of fund managers from major
financial institutions were invited to
share the latest scientific opinions of
professor Martin Bobrow, a medical
genetics guru at Cambridge University.
The issues raised centred around
genomics - the term used to define the
investigation of the way genetic analysis
could be used in drug development.
Professor Bobrow discussed the way
genomic discoveries are set to
revolutionize drug research, at the same
time pointing out that we need to be
realistic about the time scale on which
this could occur. 'Biotechnolgy is
something of a buzz-word in today's
pharmaceutical industry,' claims
London's Andrew Tivenan. 'The impact
of genetics may revolutionize drug
discovery and could have a huge
potential market, although as yet, the
jury is still out. It's important that we
are seen by others as being at the face
of ground-breaking discoveries.'
