HVB Corporates & Markets has launched the 30th PROVIDE portfolio. Provide-A 2005-1 is the largest transaction launched so far within the PROVIDE platform from Frankfurt-based KfW Bankengruppe, the German state-owned promotional bank.
Through this Residential Mortgage Backed Securities (RMBS) transaction totaling €4.78 billion, risk from the mortgage loans of HypoVereinsbank's private customers are removed from the bank's books. Approximately €505 million of this volume has been placed successfully as Credit Linked Notes in the capital market with institutional investors. These notes will be repaid after 5.2y, assuming exercise of time call.
The Provide-A 2005-1 transaction securitises the risk from a very granular portfolio with more than 52,000 private mortgage loans from the German Business Segment of HypoVereinsbank. The pool is static, which means amortised loans will not be substituted. The loans have an average volume of approximately EUR 90,000 and are backed by about 39,200 properties. The average age of the loans in the pool is 7 years a comparatively high average. The average indexed LTV, which stands for the proportion of the current loan outstanding compared to the indexed market value of the property, amounts to merely 69.43%. More than 47% of the loans are backed by properties located in Bavaria and Baden Württemberg. The Provide-A 2005-1 transaction has been rated by Moody's and Fitch. An overall AAA rating was given to 94.5% of the pool, with only 1.3% rated below investment grade, which demonstrates the excellent quality of the pool and the structure.
By using KfW's PROVIDE platform, HVB frees up regulatory capital which creates new capacity for new mortgage loans. Unlike so-called true sale transactions, where funding is created at the same time, ProvideA 2005-1 is a synthetic transaction, where only the risk of the underlying pool is securitised. The credit risk of the underlying pool is transferred to KfW, which simultaneously transfers it via a super senior swap and credit linked notes to the capital market.
KfW offers credit institutions the opportunity to securitise credit risks under a highly standardised scheme. The equity relief thus achieved creates greater scope to grant new loans. KfW developed securitisation platforms for SME loans (PROMISE) in 2000 and for Residential Mortgage loans (PROVIDE) in 2001 in order to promote additional lending to SMEs and to the housing sector. Thereby KfW also contributed to the development of the securitisation market especially for these asset classes.
HVB Corporates & Markets is an experienced player in the European ABS market. The issue was well appreciated from investors and the book was well subscribed throughout all tranches.