Is Bloomberg trying to tell us something about the ICO’s new €23bn CLO?
July 26 (Bloomberg) — Instituto de Credito Oficial, a Spanish government agency that lends to businesses, plans to issue 14.8 billion euros ($19.22 billion) of bonds backed by company loans . . . Amid the financial crisis, Spanish banks have put together asset-backed bond issues that they don’t sell, instead using them as collateral for European Central Bank loans. The nation’s banks borrowed a record 126.3 billion euros from the ECB in June, according to data compiled by the Bank of Spain.
The news wire has a history of rather elliptical suggestion when it comes to securitisations created purely for the purpose of tapping central bank liquidity. Lehman Brothers’ Freedom CLO is the last one we can think of that received Bloomberg’s suggestive treatment, back in early 2008.
We know now, thanks to the Valukas report that Lehman did indeed pledge bits of Freedom at the Federal Reserve’s primary dealer credit facility, instead of marketing the transaction to ‘real’ investors.
Likewise, the European Central Bank (still) allows structured finance transactions to be used as repo collateral for its funding facilities, though we think something like the ICO CLO outlined above would need at least two AAA ratings.
For what it’s worth, Moody’s has assigned the circa €15bn Class A notes from the SPV-issued ICO deal provisional ratings of AAA. The agency’s description:
This is a static collateralized loan obligation (CLO) related to a EUR 22,868.7 million par value portfolio of financing lines denominated in Euros granted by Instituto de Crédito Oficial (“ICO”, Aaa/P-1, on review for downgrade) to more than 90 financial institutions in Spain. It is a concentrated portfolio, where 10 institutions represents approximately 70% of the portfolio. At closing the Fondo, a newly formed limited liability entity incorporated under the laws of Spain, will issue one class of rated notes and an unrated loan to finance the purchase of the financing lines (at par).
The new CLO, incidentally, is called ICO Mediacion II AyT.
It’s predecessor, the €14bn ICO Mediacion I AyT issued in 2007, was at the time one of Europe’s largest securitisations. It was also happily trumpeted on the ICO’s website as the first time the company used securitisation as a “balance sheet management tool.”
It very explicitly said the 2007 deal was not for liquidity purposes.
But perhaps times have changed.
Related links:
Sovereign/Securitisation/Stop – FT Alphaville
On the trail of the PDCF CLOs – FT Alphaville
Quantifying the ECB overdraft – FT Alphaville
Spanish banks creating riskier ABS for ECB, Fitch says - Reuters