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Alternative Investments: Asset-Backed SSD / NSV

Christian Wolff, Director, Corporate Finance at Helaba, looks at how Schuldschein and the Namensschuldverschreibung (NSV) can finance project-driven transactions.

Christian Wolff will be speaking at the upcoming International Schuldschein Forum 2017 on March 29th & 30th in Frankfurt.  Find out more about the conference
here or you can secure your place here

At the end of each year many people tend to have good intentions to reduce their volumes of cigarettes, sweets and other consumption goods. Not so in the Schuldschein market, which has continued its growth trend to reach a new record volume of more than EUR 25bn for the year 2016.

Due to the continuously low yield environment all groups of investors are still eager to find comparatively low risk investments to reach their required target margins.

While the broad majority of the Schuldschein market serves corporates as an attractive and reliable unsecured financing source since decades, issuers in alternative asset classes such as infrastructure and aviation begin to recognize the advantages for more project-driven transactions using the Schuldschein (SSD) and, for over ten year tenors, the Namens-schuldverschreibung (NSV). In these transactions, the SSD/NSV are secured with liquid and marketable assets such as aircraft or the repayment of the notes is secured by government guaranteed project cash flows similar to project bonds.

The asset backed SSD/NSV offers longer debt tenors and is an excellent match for investors’ needs as it offers the advantages of the established Schuldschein standard and combines those with the additional benefits of a secured, asset backed product by adding credit enhancements such as liquidity facilities and security structures that offer an external investmentgrade rating for the investor. 

While the typical unsecured Schuldschein is usually issued and guaranteed by a corporate or a corporate financing entity, the asset backed SSD/NSV notes are issued by a bankruptcy-remote special purpose entity (SPE). In contrast to an unsecured SSD financing, the asset backed SSD/NSV entitles the investor beside a potential corporate recourse (guarantee) to additionally have a first ranked claim over the underlying asset in case of a transaction default. This structure offers significantly higher recovery rates than in a typical unsecured financing scenario and therefore can provide a substantial rating uplift compared to the corporate issuer’s rating.

As the unsecured Schuldschein is either unrated or directly reflects the corporate issuer rating, the asset backed SSD/NSV distinguishes itself in this aspect as it offers a specific external transaction rating by an established rating agency. In terms of structural parameters, the asset backed SSD/NSV is a very flexible solution that allows for meeting the requirements of both issuers and investors with either bullet repayments or a repayment schedule that reflects several bullet tranche repayments in one issuance.

In general, after a successful 2016 with over 120 transactions and more than 40 international issuers, the Schuldschein segment has further grown up to be an important European private placement product. Moreover, an ongoing trend to larger tickets and longer maturities can be observed. It is likely, that this success will continue in 2017 and the Schuldschein market will expand even further as there is no sign for a decline of its attractiveness for investors.

This content is provided by Euromoney Seminars for informational purposes only, and it reflects the market and industry conditions and presenter’s opinions and affiliations available at the time of the presentation.