EIF participation in KfW’s PROMISE securitisation programme

The European Investment Fund (EIF) has recently agreed to act as a credit default swap counterparty for the First Loss Piece and for a mezzanine tranche rated Ba2 for an amount of EUR 109.5 m and EUR 25.0 m respectively, in a securitisation of SME loans originated by IKB Deutsche Industriebank (Germany).

The transaction, for an amount of EUR 3,650 m, is structured under Kreditanstalt für Wiederaufbau's (KfW) Promise securitisation programme. The Promise (Programme for Mittelstand-loan Securitisation) programme enables KfW to support on-lending German banks in their granting of loans to the Mittelstand by providing regulatory capital relief and transferring credit risk to capital markets and swap counterparties.

This is the third operation with EIF participation under the Promise securitisation programme, after Dresdner's Promise-K 2001-1 and BW Bank's Promise-G 2001-1 transactions. Similarly to the previous transactions, it will be a synthetic deal. The originator is IKB Deutsche Industriebank, a specialised long-term credit institution for SMEs in Germany and one of the largest on-lending banks for promotional loans.

Following last month's signature of this latest guarantee transaction, EIF Chief Executive, Walter Cernoia, welcomed the benefits of this operation for German SMEs: This PROMISE transaction enables IKB to fully transfer the credit risk of the underlying loan portfolio and to free up capital for new SME lending. As such, it is fully in line with EIF's remit to support the creation, growth and development of SMEs.

The EIF was created in 1994; it is the specialised financial institution of the European Union for the support of the creation, growth and development of Small and Medium-sized Enterprises (SMEs). The EIF shareholding has a tripartite structure that comprises the European Investment Bank (EIB, 60%), the European Commission (30%) and several European banks and financial institutions (10%).

The EIF does not finance SMEs directly, but always acts through financial intermediaries. It intervenes through venture capital and guarantee instruments.

The EIF guarantee instruments facilitate access to debt finance by SMEs through the intermediation of a wide range of banks and financial institutions. The latter are allowed to allocate capital to those operations at a reduced risk weighting of 20% in accordance with EIF's status as a Multilateral Development Bank under the European Solvency Ratio Directive.