EIF announces Securitisation Transaction with Fortis Commercial Finance

The European Investment Fund (EIF) has entered into a junior credit default swap agreement (CDS) for the junior tranche rated Baa2 in a securitisation transaction of a portfolio of trade receivables originated by Fortis Commercial Finance (Belgium/Netherlands). The transaction, for an amount of EUR 500 million, also involves Scaldis Capital - Fortis' asset backed commercial paper conduit as a swap counterparty. The EIF credit protection amounts to EUR 15 m and is subordinated to a senior swap of EUR 397.5 m and a mezzanine swap EUR 75 m. A First Loss Piece of EUR 12.5 m held by the originator protects the EIF risk position. The arranger is Fortis Bank. The underlying portfolio consists of trade receivables financings originated by Fortis Commercial Finance to SMEs operating both in Belgium and the Netherlands. This is the first cross-border securitisation operation with the EIF participation.

SME financing securitisation became a priority for the EIF in 2000, in view of market developments and the EIF mission of contributing to enhance access to finance by European SMEs. The EIF provides an unconditional, irrevocable guarantee of timely payment of principal and interest on mainly BB to A rated bonds. These bonds are wrapped up to an implicit AAA rating level. It is recalled that 95% of EIF's capital is held by AAA rated institutions and that the EIF has a share capital of EUR 2 billion and outstanding guarantee commitments of approx. EUR 1 billion. In 2001, the EIF has already participated in five other transactions of this type, with Banco Bilbao Vizcaya Argentaria in Spain, Dresdner Bank in Germany, Lombarda Lease Finance in Italy and GIAC in France.

The EIF was created in 1994; it is the specialised financial institution of the European Union for the support of the creation, growth and development of Small and Medium-sized Enterprises (SMEs). The EIF shareholding has a tripartite structure that comprises the European Investment Bank (EIB, 60%), the European Commission (30%) and several European banks and financial institutions (10%).

The EIF does not finance SMEs directly, but always acts through financial intermediaries. It has concluded last year, in all EU countries, 57 operations in the field of venture capital for a total amount of EUR 800m and 39 guarantee operations representing a total commitment of EUR 935m.

The EIF guarantee instruments facilitate access to debt finance by SMEs through the intermediation of a wide range of banks and financial institutions. The latter are allowed to allocate capital to those operations at a rate of 20% in accordance with EIF's status as a Multilateral Development Bank under the European Solvency Ratio Directive.