SMBC closes securitisation of PPP portfolio

The bank has completed the synthetic securitisation of European infrastructure loans worth £233m. It has transferred most of the credit risk through a guaranteed tranche within the deal, funded by a single institutional investor. The bank is keeping the first-loss tranche and the bigger unhedged senior tranche.

Japanese bank Sumitomo Mitsui Banking Corporation (SMBC) has completed the third securitisation based on its European public-private partnership (PPP) loan portfolio, the bank said in a statement.

SMBC: third PPP loan
securitisation in 5 years

This latest deal involves the synthetic securitisation of a £233 million (€281 million; $345 million) infrastructure portfolio comprising senior loans to 14 project borrowers. However, this deal differs from SMBC’s previous PPP securitisations in the way the bank is transferring credit risk.

Whereas in previous deals SMBC transferred risk through the sale of credit default swaps and credit-linked notes issued to several capital markets investors, for this securitisation the bank achieves protection via a guaranteed tranche within the synthetic instrument, to be funded by a single institutional investor.

Under this structure SMBC “has transferred a substantial amount of credit risk associated with the loan portfolio”, although it is still exposed to the first-loss piece and the bigger unhedged senior portion.

The bank’s first PPP securitisation – Stichting Profile I – was closed in 2005 comprising a portfolio of 32 UK PFI/PPP assets worth £373 million. The second – known as SMART PFI – was completed in 2007 with a £389 million portfolio of 34 UK PFI/PPP assets. SMBC has also done similar deals in recent years for other sectors, including energy project loans and corporate loans.