EIF Presentation Template

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Helmut Kraemer-Eis
Madrid, 27 May 2010
WPFS Workshop on Securitisation
Head of Research Market Analysis
Securitisation as tool to support SME financing
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Content

• Introduction/SME financing/the EIF
• Overview
• EIFs role
• Origination Focus
• Underwriting Criteria
• Pool Criteria
• Portfolio Summary
• Concluding Remarks
• Contacts

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Introduction The challengeFinancing Innovation
amongst SMEs in Europe

• SMEs account for a large proportion of Europes
  economic activity
• Micro-businesses dominate employment in countries
  such as Italy (48) and Greece (57)
• Successive EU summits put issues of growth,
  employment, innovation and competitiveness high
  on agenda
• EIF is the SME arm of the EIB Group

Source Eurostat, Commission Communication on
Modern SME policy for Growth and Employment
Importance of SMEs as the Foundation Stone for
Tomorrows Prosperity
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Introduction EIF at a glance
EU specialised institution for SMEs, risk
financing Venture Capital and Mezzanine (fund of
funds) Structuring and Guaranteeing portfolios of
SME and microfinance loans/leases
Geographic Focus / Intermediaries EU 27, EFTA,
Candidate Countries Distributing through Banks
and Funds
Authorised Capital 3bn
AAA rated
Staffing, Culture and Values Leading-edge modern
institution Adapting to changing market
conditions Attracting talented staff High
standards of compliance and integrity
Dual Objective of Meeting EU Policy Goals
Generating a Satisfactory Return on Equity
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Introduction EIFs Shareholders
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Introduction Operating Model of
EIFTransformational Role of EIF
Suppliers / Mandators
Transformational Key Success Factors
Intermediaries
SMEs

• Own resources
• Mandates by
• EIB, EC, MAs,

• Productdevelopment
• Mandate management
• Transaction execution
• Risk management
• Follow-up and relationship focus

• Commercial banks
• Development Promotional banks
• Guarantee Institutions
• Fund Managers

VALUE ADDED
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Introduction EIF Tool Kit for SMEs
SME Cash Flows
Public Stock Markets
Portfolio Guarantees Credit Enhancement
VC Seed Early Stage
Microcredit
Business Angels, TT
Development
Emerging Growth
Seed Phase
Start-up Phase
SME Development Stages
HIGHER RISK
LOWER RISK
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Overview SecuritisationStatus

• European Investment Fund (EIF) is part of the EIB
  Group and serves as
• Europe's leading developer of risk financing for
  entrepreneurship and innovation
• Multilateral Development Bank (MDB) status
• Basel II 0 risk weighting
• Aaa/AAA/AAA ratings (Moodys/SP/Fitch)

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Overview Why SME Loan Securitisation?

• Transforming illiquid SME loans into liquid asset
  class.
• Alternative source of funding for the originating
  banks.
• Economic and regulatory capital relief.
• Smaller banks are able to tap the capital
  markets.
• Portfolio management, risk diversification.
• Overall increase of lending capacity.
• Advantages for investors.
• Securitisation of an individual loan does not
  improve the access to finance for the individual
  SME, but on a portfolio level banks are able to
  expand their SME lending.
• Positive impact on the overall availability and
  conditions of loans to SMEs.

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Overview Market Environment

• European SME securitisation market has dropped
  since 2007 with reduced investor demand.
• Still negative perception of securitisation in
  Europe contagion effects.
• Restart depends on macroeconomic developments,
  investors demand, and regulatory environment.
• Public sector support to complement private
  sector activities.
• Replicable tool for SME support that provides
  efficient multiplication of public money.
• EIF expects to play a key role in rebuilding the
  market.

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EIFs Role

• EIF as deal facilitator (for any SME-backed
  transaction)
• Credit enhancer of typically mezzanine tranches,
  either with ABS wrap or as bilateral protection
  seller.
• Unconditional, irrevocable guarantee of timely
  payment of interest and ultimate payment of
  principal.
• Transaction Manager for the EIB Group, with
  potential involvement of EIB as cash investor at
  senior (AAA) level.
• Deal maker with active structuring role
• Small, bilateral and work-intensive deals
  unattractive for investment banks, but which
  contribute to the development of the SME
  securitisation market.

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EIFs Role(example)

Typical EIF intervention in a securitisation
transaction

AAA AA A BBB BB unrated
Originator
SPV
Investors
Reference SME Portfolio
Sale of Portfolio or
Aaa/AAA
Investors
Credit Default Swap
External guarantor
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Origination Focus

• WHO
• SME Finance Providers (mainstream 2nd tier
  originators)
• WHAT
• HOW
• Through Investment Banks for public deals /
  private placements
• Direct origination with established FIs
• Direct origination for bilateral transactions

We do We dont
Financial Guarantees Cash investments
Granular Portfolios Non granular portfolios (lt500)
SME-loans / - leases, - trade receivables Mezzanine loans healthcare receivables direct loans to originators
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Underwriting Criteria

• Minimum tranche rating
• Typically BB (exceptionally BB- / B)
• External rating is not required but preferred
  EIF always assigns its internal rating to the
  tranches guaranteed and performs own due
  diligence.
• Max. amounts
• BB up to EUR 10-15m
• BBB-AA up to EUR 15-100m
• AAA up to EUR 150m (larger tickets possible for
  senior positions)
• Max. term
• Typically 3-5 years WAL
• Up to 10 years WAL exceptionally up to 15 years
• Competitive/Commercial pricing

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Pool Criteria

• Eligible countries and currencies
• All EU Member States
• Candidate and potential candidate countries
  (Turkey, Croatia, Western Balkans, etc.)
• All European currencies
• Obligor Entities
• SMEs (EU definition)
• Middle-market companies eligible, but to a
  limited extent

• The portfolio should be SME focused!

ie lt 250 employees and lt EUR 50m turnover or lt
EUR 43m assets
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Pool Criteria

• Originator must be committed to new SME lending!
• Typical underlying pool
• Credit quality supported by PD, LGD, or
  historical data
• Granularity of gt500 names
• Max. obligor exposure of 50bps
• Industry diversification

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Portfolio Summary

• EIFs securitisation portfolio
• Outstanding commitment EUR 2.7 bn
• Number of outstanding tranches 124
• Average transaction commitment EUR 24.2 m
• Countries covered 18

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Concluding Remarks

• SME financing/Securitisation
• The revitalisation of SME securitisation is a
  systemic approach to strengthen banks capacities
  and capacities to supply long-term financing to
  SMEs.
• The support of this market is very important for
  the future of SME financing.
• Securitisation as efficient way of deploying
  public support.
• The EIF
• is a stable specialist, long term investor and
  guarantor.
• plays a catalytic role in enhancing access to
  finance for SMEs.
• intends to play a key role in rebuilding the SME
  securitisation market in Europe.
• supports the introduction of quality signals,
  e.g. Prime Collateral Securities (PCS).

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Contacts EIFs Securitisation

• European Investment Fund96, Blvd. Konrad
  Adenauer L-2968 Luxembourgwww.eif.org
  

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Thank you for your attention!Helmut
Kraemer-EisEuropean Investment FundHead of
Research Market Analysish.kraemer-eis_at_eif.org
352 42 66 88 394