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Financial statements 2011
The performance of a transaction is assessed based on
EIF’s surveillance triggers which take into account ele-
ments such as the level of cumulative defaults, the credit
enhancement, the provisioning amount and any rating ac-
tions by external rating agencies.
In case of breach of such triggers and depending on the
gravity of such breach, a transaction can either change its
status (Under Review with Positive or Negative Outlook)
or a model re-run is initiated to reassess EIF’s internal rat-
ing. Dedicated professionals within the RMM G&S unit
submit proposals to the IRC to flag transactions as Under
Review with Positive or Negative Outlook and/or to initi-
ate an EIF’s model re-run.
The EIF’s rating model re-run may also be requested to the
IRC before an EIF’s trigger is breached (upon request by
TRM or RMM) when other circumstances suggest that the
EIF’s internal rating may already be affected.
EIF systematically puts Under Review any transaction with
an internal rating below iBa2 level. Transactions flagged
Under Review or Negative Outlook are closely scruti -
nised for a possible breach of EIF’s surveillance triggers,
which typically motivates a prompt re-run of the EIF’s rat-
ing model.
To monitor EIF’s surveillance triggers correctly, the surveil-
lance activity includes the following tasks:
■
checking compliance of the counterparties with any
relevant contractual covenants and triggers,
■
assessing the expected evolution of operation’s per-
formance compared to estimates set prior to its signa-
ture (e.g. actual cumulative defaults are compared to
a given predetermined threshold level or base case
scenario),
■
assessing whether the level of capital allocation and
provisions made for each operation are always ad-
equate,
■
following-up any external rating agencies actions
that might indicate a substantial change in the perfor-
mance of the underlying portfolio,
• monitoring any other element of concern which calls
for additional scrutiny (e.g. negative news regarding
the servicer or originator).
Furthermore, a committee consisting of staff with adequate
skills and appointed by the IRC may be set up in order to
propose and negotiate solutions to minimise EIF’s losses
in underperforming deals.
The monitoring activities also include the analysis of the
G&S portfolio as a whole (Portfolio Review).
3.3.2 Portfolio overview
At the end of 2011, total G&S own risk transact ions
amounted to EUR 2 879.8m (2010: EUR 2 580.2m) in
terms of exposure at risk (i.e. commitment less repayments).
EIF’s own-risk operations consist mainly of the credit en-
hancement product type which, at the end of 2011, rep-
resented 94.0 % (EUR 2 706.9m) of total exposure at
risk of own-risk guarantees (2010: 94.5% representing
EUR 2 438.4m). The credit enhancement product serves
as an unconditional debt service guarantee (or as a credit
default swap), with full or partial coverage of a specific
tranche of an SME loan portfolio, and a maximum weight-
ed average term of 15 years. The guarantee is called
upon when losses in the portfolio would otherwise have
caused a shortfall on a due payment of interest and/or
principal on the guaranteed tranche.
In the past EIF also underwrote credit insurance and struc-
tured investment vehicles products. As of 31 December
2011, credit insurance products and structured investment
vehicles investments accounted for 5.9 % (EUR 169.8m)
and 0.1 % (EUR 3.1m) of all own-risk outstanding guaran-
tees, respectively.
3.3.3 Portfolio quality and performance
As of 31 December 2011, 80.2 % (77.8 % at year end
2010) of the overall portfolio was at investment -grade
level (rating from Aaa to Baa3 inclusive); 68.2 % of the
number of tranches (63.2% at year-end 2010) were rated
by at least one external rating agency with the remainder
relying on EIF’s internal rating. The credit enhancement
portfolio’s average rating remained stable at Ba2 as a