Portuguese ABS Evolving


The busy people at Deutsche Bank advanced the Portuguese asset-backed market recently with an innovative deal for Tecnicredito S.A., Portugal's largest independent originator of auto loans.

According to a Deutsche official, the transaction, called Bmore No.1 and worth E150 million ($165 million), broke new ground as it was structured to achieve a triple-A rating, rather than a rating dependent on Deutsche's own.

Because of the country's regulatory and tax environment, the two previous public asset-backed term deals were structured using Deutsche's Portuguese subsidiary to buy the underlying assets with money provided by a non-recourse deposit, which, in turn, was financed by an equivalent deposit from the issuer using the proceeds of the bond issue.

In this deal, however, Deutsche and Tecnicredito have split the interest and principal components of the underlying portfolio and transferred the latter straight to the SPV, as principal payments are not subject to regulatory and tax complications.

The interest component in the new deal, which is subject to tax, follows the old pattern, but the split allows the deal to achieve a rating of triple-A and consequently, a better cost of funds than previous deals.

"We have been able to structure the transaction so that the rating is strictly dependent upon the credit quality of the underlying assets, which we have not been able to do before," the Deutsche official said. "Investors were comfortable analyzing the transaction solely in the light of the structure and credit profile of the Portuguese assets."

The source added the structure had been used in the past for Portuguese conduit deals, but this was the first time for a term deal.

The transaction, which has a three-year revolving period before it begins to amortize, was split into three tranches, rated triple-A, double-A and single-A, and the portfolio was made up of 31,000 loans with an average principal balance of E4,800. It was sold to nine different investors from several countries.

Innovative CDOs from Germany

In a fortnight dominated by deals backed by Euro-denominated assets, two German banks launched complicated collateralized debt obligations, taking advantage of the European demand for yieldy but highly rated paper.

First up was a repackaging of U.S. commercial mortgage-backed securities from HypoVereinsbank. The E297 million deal, called Multi-Asset Euro-Denominated 1999-C1, featured a 10-year maturity and a soft bullet structure; it was chopped into fixed-rate and floating-rate tranches and rated triple-A.

According to a bank official, the structuring, which used a variety of derivatives to set up the bullet structure and avoid prepayment risks, was complicated; but from a pricing point of view, the transaction was made easier because the underlying assets were purchased when U.S. CMBS deals were trading at wide levels.

The second deal from a German bank, a CBO transaction from Dresdner Kleinwort Benson called Cathedral, was also structured with a bullet maturity to attract European investors seeking precise cashflows.

The transaction was split into dollar- and Euro-denominated chunks backed by pfandbriefe and supranational debt, respectively, and used a credit default swap referenced to a portfolio of 50 bonds collected by Dresdner specifically for this transaction. - MD

Alcatel Creates A First

Perhaps the most notable recent dollar-denominated European deal came from underwriters Citibank and Salomon Smith Barney, which arranged the first global vendor finance securitization outside of the U.S. for French telecoms equipment manufacturer Alcatel.

The transaction was structured using a Citibank-managed Delaware-based trust called Securitized Vendor Finance 1999-A, which has purchased a portfolio of loans made by Alcatel to finance its customer purchases. At present, the trust can buy up to $500 million worth of such loans, although Alcatel expects this to grow to $1 billion over the next year.

The pooling of the loans, combined with their diversity and credit enhancement, allowed for a higher rating than if the loans were sold individually. Alcatel retained exposure to the first 30% of any losses.

"The off-balance sheet sale of longer term loan assets improves corporate liquidity and frees up capital for other productive uses," said Jean-Pierre Halbron, Alcatel's chief financial officer. - MD