EMEA Structured Finance Issue: Sabadell's €1bn Sabadell Consumo 1

IFR Awards 2019
3 min read
Chris Moore

A good name

When analysts told Banco Sabadell at the beginning of the year that it had to improve its capital position, they said the bank had just two options: sell assets or raise equity.

But with neither of those an attractive choice, Sabadell pursued a third avenue: hiring Deutsche Bank to arrange a €1bn consumer loans securitisation called Sabadell Consumo 1.

The deal was geared towards helping Sabadell make good its commitment to end the year with a core equity Tier 1 ratio of 11.6% or higher.

It was the first European consumer loan ABS to place an entire capital stack that includes excess spread. That structure gave Sabadell an €88m upfront gain on the sale of the portfolio and around 14bp of fully-loaded CET1, at an implicit cost of just 5%.

"We've been able to generate 14bp of CET 1 – a remarkable amount – at a time when it was essential for us to deliver on our capital rebuild," said Sergio Palavecino, chief financial officer at Sabadell.

And after years when securitisation sounded like a dirty word to many banking analysts, Sabadell was proud to highlight the deal in its quarterly results.

The deal is Spain's biggest public ABS since the financial crisis, providing a much-needed confidence boost for the country's securitisation market.

Sabadell Consumo 1 was also the first Spanish public deal to meet the European Union’s new simple, transparent and standardised regulations.

Sabadell could have instead attempted a traditional significant risk transfer securitisation with a structure allowing the excess spread generated by future cashflows of the underlying assets to flow back to the seller.

But in 2018 the European Central Bank indicated it would no longer approve such structures and Sabadell began structuring its deal to sell that excess spread to investors, thereby fully de-recognising the loans in the portfolio.

As it happened, the regulator modified its stance in the middle of 2019 and the traditional SRT route reopened.

Sabadell would have had time to restructure accordingly, giving it a more modest 7bp CET boost. But after running the numbers – particularly around pricing on the crucial, challenging Class Z at the bottom of the capital stack – it chose to stick with its original ambitious plans.

At the end of August, the €78m Class Z was shown to a small number of investors and then pre-placed – along with three lower-mezzanine tranches – after a competitive tender process.

The deal was then publicly announced, offering three investment-grade tranches topped by a €875m Aa3/AAL (Moody's/DBRS) senior tranche anchored with a €500m protected order from the European Investment Bank.

The remaining €375m senior notes were over four times covered at final pricing of 41bp over three-month Euribor – tight for southern European ABS – and the €35m Classes B and C came at similar levels of oversubscription.

Deutsche was sole arranger and joint lead manager with Sabadell.

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