Winner: Fanes SRT 2023

Sparkasse’s debut SRT trade, Fanes SRT 2023, is SCI’s pick for the European Transaction of the Year category in this year’s CRT Awards. Not only is the deal the first-ever Italian STS synthetic securitisation involving only private investors, it also features a one-off amortisation mechanism for the mezzanine tranche, which can be activated should the issuer be authorised to use the IRB method in the future.

Cassa di Risparmio di Bolzano, also known by its German name Südtiroler Sparkasse, is one of the most important independent savings banks in Italy. The acquisition of a majority stake in CiviBank in June 2022 positions the group as the most important territorial institution in Italy’s north-east.

Fanes SRT represents the first synthetic securitisation ever completed by Sparkasse, together with Intesa Sanpaolo through its IMI Corporate & Investment Banking Division in the role of arranger and placement agent. Closed at the end of 4Q23, this landmark transaction references a granular static portfolio of approximately €1bn of Italian corporate and SME exposures.

The structure features a 0%-1% junior tranche, retained by the originator, and a 1%-9.25% mezzanine tranche, which was allocated to two private investors at competitive pricing in the low double-digit range. Despite a crowded market in the final two quarters of 2023, the bidding process for Fanes SRT was highly successful, underscoring the transaction's appeal.

Amortisation is on a pro-rata basis, subject to performance triggers, with a time call set to the WAL, estimated at around three years. This transaction, structured as a direct financial guarantee, enabled Sparkasse to reduce its RWA by approximately 80% at closing, thus boosting its CET1 ratio.

As the first-ever STS synthetic securitisation in Italy involving only private investors, Fanes SRT not only represents a significant achievement for Sparkasse, but also sets a new benchmark for the Italian SRT market. By obtaining the STS label, Sparkasse was able to maximise the cost-efficiency of the transaction.

Due to Italy’s credit rating (i.e. below credit quality step 2), the primary challenge in achieving the STS label for synthetic securitisations for Italian banks is the inability to use cash collateral deposited with the originator. This issue was partially solved for Italy's largest banks by a Consob waiver in July 2024, although it continues to pose challenges for smaller unrated institutions.

However, to comply with STS requirements, the originator can alternatively reinvest the cash collateral in 0% risk-weighted debt securities held by a third-party custodian, maturing no later than the next payment date. Sparkasse opted for this approach and, with the support of the arranger and the legal advisor, successfully implemented a legal structure that allows the protected tranche to benefit from a 0% risk weight through a right-of-use in favour of the originator, enabling the investment of cash collateral in eligible securities.

Fanes SRT also includes an important innovative feature. It is well known that under the SEC-SA approach, the credit enhancement needed to reach the floor on the risk weight of the senior tranche is higher than under the SEC-IRBA. If during the life of the transaction, Sparkasse were authorised to use internal models and therefore to apply the SEC-IRBA, it would need a lower detachment point on the mezzanine tranche to maximise the capital relief.

To maintain cost efficiency also in this scenario, Sparkasse and the arranger have developed a one-off additional amortisation mechanism for the mezzanine tranche, which can be activated at Sparkasse's discretion once authorised to use the IRB method. This mechanism is calibrated to achieve optimal credit enhancement under the SEC-IRBA while preserving the same level of RWA relief.

This transaction demonstrates that even smaller regional banks can successfully enter the SRT market. With the collaboration of IMI Corporate & Investment Banking Division, Sparkasse has shown that it is possible for smaller, less-experienced institutions to secure highly competitive pricing and incorporate numerous innovative features in their inaugural transactions. Furthermore, the success of the bidding process and the allocation of the mezzanine tranche to multiple investors have laid a strong foundation for the originator to execute many more successful transactions in the future.

Honourable Mention: Caravela SME 6 
In February 2024, Caravela SME 6 was executed by Banco Comercial Português (BCP) and Deutsche Bank (as arranger and placement agent). A €78.6m mezzanine tranche was placed with private investors.

The transaction, which has a four-year term and a three-year replenishment period, references an €850m blind-pool portfolio of short-term credit facilities to SME and corporate BCP’s clients in Portugal. The credit protection is granted through a credit default swap backed by fully funded CLNs.

The transaction is the sixth securitisation under the Caravela programme, newly introducing reverse factoring facilities. The structure benefits from synthetic excess spread in use-it-or-lose-it format and is an STS-compliant securitisation.

BCP’s Caravela programme is one of the longest running active SME securitisation programmes in Europe, although formats and structures have varied through its history. BCP closed Portugal’s first SME securitisation under the name Promise Caravela in 2004.

Combining BCP's track record in Portuguese SME lending and securitisation market with Deutsche Bank's arranger and placement capabilities, Caravela SME 6 attracted very strong investor interest. With a spread of 8.70%, Caravela SME 6 is widely believed to be the corporate SRT transaction with the tightest pricing of any southern European originator in comparison to privately placed funded transactions over the prior 12-18 months.

For the full list of winners and honourable mentions in this year’s SCI Capital Relief Trades Awards, click here.