Supporting SME Financing Using Securitisation Techniques

Supporting SME Financing using
Securitisation Techniques
AMTE Final Report
November 2006
Chaired by
Philippe Madar
Société Générale
Corporate & Investment Banking
AMTE Final Report
Table of contents
Introduction............................................................................................................... 3
1 Overview of the SME securitisation market ........................................................ 4
1.1 A few words on the European securitisation market..................................................... 4
1.2 Review of completed and pending works by other entities .......................................... 5
1.3 Main current features and trends of the European ABS market of SME loans.............. 8
1.4 Challenges of the market............................................................................................ 10
2 Public Sector Bodies and SME Securitisation .................................................. 11
2.1 Rationale for intervention of public sector agencies ................................................... 11
2.2 Rationale for originators ............................................................................................. 12
2.3 Understanding the needs and concerns of originators: Scope and results of the Pan
European Survey conducted with the collaboration of the FBE........................................ 14
2.4 Quantitative and qualitative effects of promotional programmes for SME securitisation
in Europe .......................................................................................................................... 18
3 Standardisation of SME Securitisation Transactions ....................................... 25
3.1 Standardised Originator’s Data required for an SME securitisation............................ 25
3.2 Standardised Investor Report for an SME securitisation ............................................ 26
4 Achieved consensus and Recommendations ................................................... 28
4.1 Increasing efficiency of public sector intervention by catering the originators’ needs 28
4.2 Promotion of standardised data ................................................................................. 30
5 Action Plan ........................................................................................................... 31
5.1 Communication to third parties .................................................................................. 31
5.2 Report promotion: Participation in future events ........................................................ 31
5.3 Creation of a barometer ............................................................................................. 31
6 Annexes ................................................................................................................ 32
Supporting SME Financing using Securitisation Techniques 2

AMTE Final Report
Introduction
The scope of the study conducted by a dedicated AMTE working group is the
efficiency of European SME securitisation techniques. This initiative, which aims to
increase the efficiency of Euros Capital Market and benefit the SME financing
activity, involves the intervention of different actors of the economy. Although each
of these actors may have specific drivers of interest, the fundamental role and the
source of dynamism for the European economy of the SME activity leads to a
convergence of actions.
Among the main drivers for active participation, SME loans appears to be a key
asset class for portfolio managers of banks, which are often subject to some
regional, corporate and industry concentrations, and especially as it is the most
sensitive by nature to economic downturns. For public sector agencies,
securitisation has been identified as an area of interest by which they aim to
support and stimulate lending to SMEs. For structuring banks, there is an interest
due to the high potential for future growth. And finally for investors, it is an
attractive area where they can reach further risk diversification.
Nonetheless, specific challenges for this asset class have kept issuance volumes
low compared to other ABS asset classes. Indeed, both public sector attention and
standardisation are essential for the development of SME securitisation. This report
has been built upon those two key drivers and aims to recommend best practices
for a further efficient development of SME securitisation.
The report starts with an overview of the SME securitisation market. The second
part considers the drivers for public sector agencies as well as originators in a SME
securitisation and analyses the needs and concerns of originators through the Pan
European Survey which has been conducted with the collaboration of the European
Banking Federation. Then, to better assess the efficiency of public sector
intervention, the report summarises the quantitative and qualitative effects of
promotional programmes existing for SME securitisation in Europe. The third part
deals with the possible standardisation of the transactions from both the originators
and investors’ standpoints. Finally, the report expresses the recommendations from
this AMTE working group, which would facilitate increases in the volume and
efficiency of SME securitisations.

AMTE Final Report
1 Overview of the SME securitisation market
1.1 A few words on the European securitisation market
For uninitiated readers and clarity’s sake, securitisation is the mechanism by which
individually illiquid financial assets such as loans are converted into tradable capital
market instruments. More specifically, selected receivables (assets) of the originator
are packaged together in an underlying pool and sold by the originator to a Special
Purpose Vehicle (SPV). The SPV refinances the pool by issuing debt instruments
(Asset Backed Securities or ABS) on the capital markets.
Among benefits of securitisation, ABS transactions help issuers to get funding,

transfer risk and extend maturity of financing. These benefits can be achieved
under two main structures; a cash structure where the primary benefit for the
originator is to get funding and a synthetic structure with no funding elements
allowing a pure risk transfer through credit protection contracts. An ABS structure
allocates collections from an underlying collateral of receivables (asset claims) to
the securities in the form of so called tranches. This allocation of collections also
extends (inversely) to the distribution of losses among the different tranches in
accordance with the priority of payment of the SPV. Individual security mechanisms
such as liquidity or credit support offer protection against bad debt loss. External
rating is key to the structuring of transactions in order to allow investors to assess
risks of portfolios and structures.
Securitisation has become a popular source of financing and risk transfer for many
financial institutions and corporations as shown by the ABS issuance volumes on
the chart below.

AMTE Final Report
Total Funded ABS issuance volumes in ! Bln from 2001 to 2006 YTD
(European assets and European distribution)
350.0
300.0
250.0
200.0
150.0
100.0
50.0
0.0
2001 2002 2003 2004 2005 2006
Source: SG Credit Research
Funded ABS issuance volumes in ! Bln by asset type (excluding RMBS)
60.0
50.0
40.0
30.0
20.0
10.0
0.0
ABS AUTO CDO CLO CMBS CNSMER
2004 2005 2006
1.2 Review of completed and pending works by other entities

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Members of this AMTE working group have already taken part to similar workshops
on related topic and previous studies have been used as preliminary material to go
further in the analysis.
Some previous studies and Working Papers on SME Securitisation by other

entities:
EUROPEAN COMMISSION DG ENTERPRISE AND INDUSTRY, Study on asset

backed-securities: impact and use of ABS on SME finance, November 2004
EUROPEAN COMMISSION and FBE Fifth EU Bank-SME Round Table February

2006-2007: the securitisation of SME loans
IMF: Asset Securitisation as a Risk Management and Funding Tool: What Does it
Hold in Store for SMES? February 2005
EUROPEAN INVESTMENT FUND: Securitisation as a means to enhance SME

financing 24/04/2003
KfW and EIF Workshop on SME Securitisation: June 2nd 2005; where the following
were presented:
 European ABS Markets and SME Securitisation Alexander

Batchvarov, Managing Director, Head of International Structured
Finance Research, Merrill Lynch
 Impact and Use of ABS on SME Finance – Results of a study for a

DG Enterprise and Industry, Stuart Burton, Director, GBRW Ltd
 Banks and their SME Business: The role of securitisation by Thomas

Raab, Director, Mercer Oliver Wyman
 The EIF’s Experiences in SME securitisation – a few case studies,

Alessandro Tappi, Head of SME Portfolio Guarantees &
Securitisation, European Investment Fund
KfW and EIF Workshop May 23rd 2006 – Financing SME growth in Europe –
Innovative Securitisation Schemes and Access to finance for European SMEs:
 New Developments in the European Capital Market to Close the

Financial Gap of SMEs, Dieter Glüder, Senior Vice President Asset
Securitisation, KfW Bankengruppe
 Mezzanine Financing for European SMEs – Demand & Supply or the

Challenge of Hybrid Products, Alessandro Tappi, Head of
Guarantees & Securitisation, European Investment Fund

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 Securitisation of Mezzanine SME Loans – An overview of Existing

Programmes and their Rationale, Markus Herrman, Director, Head of
ABS Research & Strategy, HSBC
 Mid Cap Bonds and Securitisation of SME Bonds – Access to the

capital Markets for Austrian SMEs, Henriette Hochgatterer, Executive
Director Treasury, Investkredit Bank AG
 How does it feel when they securitise your loan? Experiences from
participants in Securitisation Programme, Ralph Lanckohr, CEO,
International Holding AG, Stefan Meutsch, Managing Director, and
Christian Jürgens, Managing Director, Vereinigte Verlagsanstalten
GmbH
 The AMTE Working Group on “SME Securitisation” – Aims and first

results, Philippe Madar, Chairman of the AMTE working group on
SME securitisation, Managing Director ABS Europe, Société
Générale Corporate and Investment Banking

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1.3 Main current features and trends of the European ABS market of SME
loans
SME securitisation activity across the EU relies on local markets. In addition to the
local specificities, the lack of homogeneity between the SME loan portfolios makes
the securitisation of SME portfolios more complicated than for other ABS asset
classes. With SMEs accounting for over 90% of all European enterprises a recent
study concludes that SME assets account for an average 15.5% of European bank
assets, which amounts approximately to €3,300 billion. Based on this assumption,
a study for the European Commission estimated that between 1% and 2% of
securitisable SME claims in bank balance sheets have been securitised. Therefore,
there is still considerable scope for growth in this asset class in the coming years.
For illustration, the charts below show the amounts of SME risk transferred to the
capital markets by distinguishing cash and synthetic structures and the repartition
by country.
European SME issuance volumes in ! Bln from 2000 to 2006 YTD
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
2000 2001 2002 2003 2004 2005 2006
Funded Unfunded Total

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Funded SME issuance volumes in ! Bln from 2000 to 2006 YTD
AUSTRIA
BENELUX
BRITAIN
EUROPE
FRANCE
GERMANY
GLOBAL
ITALY
LUXEMBOURG
NETHERLANDS
PORTUGAL
SPAIN
SWITZERLAND
POLAND & CZECH
Unfunded SME issuance volumes in ! Bln from 2000 to 2006 YTD
AUSTRIA
BENELUX
BRITAIN
EUROPE
FRANCE
GERMANY
GLOBAL
ITALY
LUXEMBOURG
NETHERLANDS
PORTUGAL
SPAIN
SWITZERLAND
POLAND & CZECH
To date, the bulk of activity has shown two main distinct structures for European
SME securitisation: the synthetic structure widely used in Germany through the
KfW Promise programme, and the true sale structure used in Spain through the use
of special purpose investment companies known as FTPYMEs and benefiting from

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the guarantee of the Kingdom of Spain. These features will be addressed later in
the report.
It can be noticed that the high level of activity in Germany and Spain is probably in
most part attributable respectively to the PROMISE programme sponsored by KfW
and the FTPYME programme supported by the Spanish Government. Due to their
importance, the second part of the report presents these programmes in detail.
Based on recent transactions and market participants’ views, the main trends in the
securitisation market are an increasing investor demand, an improved liquidity
following the development of the secondary market and a standardisation of
structures. As a consequence, the market is expecting the volume issuance of SME
securitisation to grow tremendously in the years to come.
1.4 Challenges of the market
Though expected to grow as a whole, there are some specific driving forces behind
the development of the SME securitisation market. In particular, considering the
impact of Basel II on Regulatory Capital of retaining SME exposures and securitised
portfolios of SME loans, originators will be required to perform advanced risk
analysis. As a consequence, greater use of credit protection and risk transfer is
likely to boost the SME securitisation market. Among the key characteristics
required for a sustained growth, the efficiency of public sector intervention may be
essential, especially within the new regulatory capital framework. The report
presents the Basel II impact for average portfolios with expected standard
characteristics in the following sections. The second main driver for market growth
relies in investor confidence for the risk analysis, which can be achieved through
standardisation of data. The next two parts of the report aim to address these
drivers in further details.

AMTE Final Report
2 Public Sector Bodies and SME Securitisation
2.1 Rationale for intervention of public sector agencies
Public sectors bodies have implemented proposals geared at maximizing the

impact, efficiency and catalytic effect of public sector intervention in SME
securitisation. The principal advantage in SME securitisation being developed
further is without doubt that it can help support greater lending volumes to SMEs.
Securitisation helps to ease the capital and funding constraints of their primary
lenders. Thus, banks and other financial institutions will potentially have enhanced
capital and funding resources by using SME securitisation techniques that attract
new investors with previously limited exposure to SME risks and transfer risks from
banks to broader risk taking population.
In addition, securitisation could provide a mechanism whereby higher risk SME

borrowers, on the edge of credit acceptability and previously denied credit, could
have their needs met, albeit at an appropriate price.
From a regulatory perspective, Basel 2 capital weight on SME lending will increase
in some cases while falling for shorter secured exposures (see 2.2.1 below). This
means that banks may either increase price or tightly monitor SME lending. Thus
securitisation remains particularly meaningful after implementation of Basel 2 to
help banks maintain lending volumes, so if banks have an efficient tool to recycle
SME lending, they will be keen to maintain or increase SME activity.

AMTE Final Report
2.2 Rationale for originators
2.2.1 Regulatory: Basel II Capital Weights on SME assets
The source of SME financing is facing concerns due to the coming implementation
of the new Basel Capital Accord (Basel II). SME lenders, i.e. mostly banks, will be
forced to update their systems and the way they manage SME exposures. Indeed,
a deeper analysis of credits through a refinement in scoring models and other
procedures may involve high implementation costs and the concern is that it could
reduce the lending activity toward SMEs.
More directly, Basel II capital requirements are expected to change and will have an
impact on SME securitisation. To illustrate and better assess the potential effect of
the new regulatory framework, we provide a sensitivity analysis under the advanced
IRB approach where the following assumptions can be set:
 The range of one-year probability of default taken into account is

[0.2%;3.0%] corresponding to the credit ratings of assets between
BBB/Baa2 and B+/B1
 The Recovery Rates assumptions are 25%, 50% and 75% allowing
for both unsecured and secured assets
 The turnover is assumed to be €25m, which is in line with Basel II

definition for SMEs (less than €50m)
The sensitivity to default probability, maturity and recovery rate are shown in the
charts below.
Impact of Recovery Rates on Basel II Capital Weights
with a 3-y Maturity and !m25 Turnover
16%
14%
12%
10%
8%
6%
4%
2%
0%
0.2% 0.4% 0.6% 0.8% 1.0% 1.2% 1.4% 1.6% 1.8% 2.0% 2.2% 2.4% 2.6% 2.8% 3.0%
BBB BBB- BB+ BB BB- B+

RR 25% RR 50% RR 75% Basel I %

AMTE Final Report
Impact of Maturity on Basel II Capital Weights

with a 50% Recovery Rate and !m25 Turnover
12%
10%
8%
6%
4%
2%
0%
0.2% 0.4% 0.6% 0.8% 1.0% 1.2% 1.4% 1.6% 1.8% 2.0% 2.2% 2.4% 2.6% 2.8% 3.0%
BBB BBB- BB+ BB BB- B+

Mat 1.5y Mat 3.0y Mat 4.5y Basel I %
The charts enable to highlight the large sensitivity of the Basel II capital charge to
the various inputs. From this illustration and given the heterogeneity of loans
classified as SMEs, a direct impact on the originators capital requirements can not
be derived.
Generally, the new Basel Capital Accord will motivate banks to update their internal
systems to be able to manage SME loans on a pooled basis and we can expect the
SME securitisation market to reap the benefits should the capital requirements be
higher than under Basel I.
2.2.2 Why securitise SME credit risk exposures?
SME securitisation can be a useful tool for banks for a variety of reasons. Among
the main drivers, originating banks are wishing to obtain funding at an interesting
level, achieve capital relief and increase overall economic capital adequacy.
Moreover, from an individual exposure standpoint, it also aims to reduce some
over-concentrations, being on a particular name, on a specific industry sector or on
a geographical region.
Further advantages brought by SME Securitisation are the portfolio management

optimisations in which banks try to improve the risk/return characteristics of their
existing portfolio, the economic returns enhancement of banking activity and the
opportunity to make liquid an illiquid risk in their balance sheet on particular SME
exposures.
However, the rationale for a SME securitisation differs from an originating bank to
another and the various benefits are of relative importance according to the
structure used.

AMTE Final Report
2.3 Understanding the needs and concerns of originators: Scope and results
of the Pan European Survey conducted with the collaboration of the FBE
Gaining a better understanding of the needs and concerns faced by originators of

SME loans is one of the two main goals of the Workshop on Public Sector Bodies
and SME securitisation. To this end, the working group agreed that one of the best
tools would be to develop a survey which would be broadly distributed to
originators throughout Europe. A key step was developing this initiative with the
collaboration of the European Banking Federation (FBE) and the European
Association of Cooperative Banks should also contribute.
The FBE concluded that the AMTE initiative could be of interest for the Fifth EU
Bank-SME Round Table, who’s third and final topic is the securitisation of SME
loans. The Round Tables are organised by the European Commission to promote
dialogue between banks and SMEs and, ultimately, to promote the availability of
finance for SMEs. One of the objectives of the current exercise is to identify good
practice and procedures which could be more widely adopted around the EU. The
Fifth Round Table began in February this year and will conclude early in 2007.
Securitisation is one of three aspects of Bank-SME relations on the agenda. The
others are transparency; and mezzanine finance and business transfers. AMTE has
been invited to these Round Tables.
Purpose of the survey and benefits
The proposed survey on securitisation is designed to gain a better understanding

of:
 the primary motivations of institutions which are securitising SME

exposures;
 the main concerns and difficulties faced by originators wishing to

adopt securitisation; and
 how eventual difficulties are linked to the characteristics of the

originators.
The results should give the banking sector information on a growing new market,
which benefits from public support. Based on a coordinated action between AMTE
and FBE, the results would be formally submitted to the Round Table, thus helping
to ensure that EU-level recommendations are based on a proper understanding of
the market, and take account of the needs of bank practitioners
The AMTE Working Group is responsible for the compilation of the survey results.
The FBE and its members will receive a copy of the results, and will be kept
informed of later developments.
Form and results of the survey

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The survey takes the form of a short questionnaire which is intended for completion
by individual banks, whose names are kept rigorously anonymous.
The list of countries which have responded to the survey are the following: Armenia,
Austria, Cyprus, Czech Republic, Finland, Germany, Ireland, Italy, Lithuania,
Norway, Portugal, Slovenia, Sweden, UK and there were some other answers for
which the country of origination has not been disclosed. More than a third of all
answers stem from countries in Eastern Europe. Detailed information can be found
in Annex 6.2.
In terms of SME portfolio sizes, the total amounts to € 318.7 Bln equivalent. It is
mainly made of portfolios of £ 41 Bln in UK, SEK 508 Bln in Sweden and € 201.2
Bln in Eurozone countries.
In addition, based on countries which answered the survey, we present below the
breakdown of SME portfolio sizes according to the originators’ rating range:
Originators' rating range in !Mln %

AAA 61 194 19.2%
AA 102 609 32.2%
A 151 969 47.7%
BBB 1 181 0.4%
BB 60 0.0%
Not Rated 1 538 0.5%
N/A 175 0.1%
Total 318 725 100.0%
Originators without rating mainly stem from Eastern Europe. Two originators, who
contribute about a fifth of the whole SME portfolio in the survey, possess a AAA
rating.
Questions regarding portfolio of SME loans
From an overall standpoint, it appears that the level of diversification of SME

portfolios does not constitute a major issue. In particular, the exposure to single
names is deemed rather good whereas the diversification in terms of geographical
region or industry sector seems slightly less positive. The higher regional
concentration indicates the importance of the business relationship between
smaller banks and SMEs, which e.g. is of special importance in Germany, where
local banks and local SMEs cultivate long-term relationships. In these cases, SMEs
are less inclined to take loans from supra-regional banks but prefer loans from
banks with local presence. The results of the survey also show that the level of
regional diversification is less satisfactory in smaller countries. Therefore, despite
the overall good level of diversification, concentration might be a problem for
individual banks.

AMTE Final Report
Present and future SME lending
With respect to the SME lending strategy, originators do not feel constrained on
average by risk exposure, regulatory capital weighting and concentration: Only one
third of all originators see their risk exposure towards SMEs as an obstacle. These
facts explain why 95% of originators plan to increase their SME lending in the
coming years.
Despite the welcoming willingness of banks to hand out more money to SMEs in
the future, the amount of loans granted would grow even further should originators
benefit from cost efficient risk transfer and regulatory capital relief: 4 out of 5 banks
would expand their lending if they could transfer risk cost-efficiently.
This is an important result: Obviously, for some banks, securitisation of SME-loans
is too expensive, which prevents them from securitisation and increasing SME
lending.
Perception and knowledge of securitisation and public sector initiatives

relating to the latter
Among the originators who have responded to the survey, there is a slight majority
which has not previously securitised assets in general and also which does not plan
to securitise SME loans.
Moreover, the survey displays a weak awareness of public sector initiatives aiding
SME securitisations. One reason could be that programmes do not exist area-wide
(although public support from EIF and KfW is available to most European
countries). Another reason might be that existing programs do not target the
special needs of originators and thus do not produce interest. The results thus
indicate that public sector schemes should be better communicated.
Advantages of SME securitisation
Looking at the advantages of SME securitisation for originating banks, a very mixed
picture emerges. For example, half of the originators appreciate the increased
liquidity of the balance sheet after the securitisation, whereas the other half does
not regard this reason as important. The same holds true for the importance of
securitisation as a tool for cost-effective funding or capital relief.
The diverging answers have to be interpreted such that (not surprisingly) the
motives differ from originator to originator. For example originators connect true
sale transactions with other motives than a synthetic transaction: Whereas funding
is of major importance in case of true sale transactions, it plays a minor role for
originators who choose a synthetic transaction.
Higher agreement exists with respect to the benefits of securitisation as a tool to
manage SME risk. To more than two-thirds of the originators the management of
SME risk is of value.
Summarising, consensus exists with respect to better risk management, whereas
other motives depend on the special needs of the originating bank.

AMTE Final Report
Difficulties of SME securitisation
When it comes to the main difficulties tied to SME securitisations, costs seem to be
the most important obstacle. 57 % of all answering banks value the costs of
securitisation as too high, and only 16 % regard the cost argument as of minor
importance. This result fits well to the results mentioned above, according to which
banks would extend SME lending if a cost-efficient way of risk transfer would be at
hand.
No clear picture emerges when it comes to the question whether the portfolio is too
small, 43 % reckon this as a difficulty whereas at the same time 43 % answered
that the size of the portfolio is no obstacle to securitisation.
Summary
The survey shows that originators connect securitisation with a wide range of
advantages, whereupon the management of SME risk seems to be of particular
importance. Looking at the main concerns and difficulties faced by originators, the
cost argument dominates all other obstacles. This is also confirmed by the fact that
an overwhelming majority of banks answered that they would increase SME lending
if a cost-efficient way to transfer risk would be available.
Please note that, despite efforts, a very limited number of German Banks have
answered and significant countries such as France and Spain did not answer,
which makes this exercise partial.

AMTE Final Report
2.4 Quantitative and qualitative effects of promotional programmes for SME

securitisation in Europe
The other main task of this AMTE workshop concerns a qualitative and quantitative
assessment of existing Public Sector Agency sponsored programmes in Europe.
The first step is performed through a qualitative analysis of the comparative role of
different public sector agencies existing structures. It provides a focus on the
guarantees which are provided, in which countries and regions as well as on the
specific conditions required.
The European programmes reviewed in this document are:
 The Spanish FTPYME scheme
 EIF guarantees
 The Portuguese Securitisation Scheme
 The KfW Promise programme
In addition, a quantitative analysis of transactions has been performed by running

prototype portfolio with standard features through the different programmes to
determine the impact of the different schemes on costs and regulatory capital
savings and a comparative Basle I/II standard.
For this, working assumptions have been defined in terms of:
 Portfolio average rating (three levels have been considered: BBB+,

BB+ and BB-)
 Transaction costs as a function of deal size in the case of a granular

portfolio
and simulations have been performed in order to determine a relevant tranching for
the different portfolios.

AMTE Final Report
2.4.1 The Spanish FTPYME programme
In May 1999, the Government established a programme of Kingdom of Spain guarantees

for SME securitisations, which facilitates true sale transactions of pools. The aim of the
originators is cheaper funding rather than capital relief and the guarantee by the Kingdom
of Spain significantly lowers the overall funding costs for the originator.
Using the following standard assumptions:
Portfolio Assumptions
Minimum Rating single borrower B
Secured loans/ Collateral in % of Portfolio 50%
Number of loan contracts 5000
Maximum Single Borrower concentration <1%
Regional concentration No/ diversified
Industry concentration single industry max. 15%
Industry concentration top 3 industries < 35%
Duration of underlying loans 5 years
Mainly “Small caps” annual turnover < !50 Mln
and based on different average portfolio ratings, three tranching have been computed:
Tranche Rating Pool Rating BB+ Pool Rating BB- Pool Rating BBB- Spreads
AAA/Aaa 92,4% 87,4% 93,9% 25 bp
AA/Aa2 0,5% 1,1% 0,5% 45 bp
A/A2 0,5% 0,8% 0,6% 60 bp
BBB/Baa2 1,2% 1,9% 0,8% 100 bp
BB/Ba2 1,3% 1,8% 1,1% 400 bp
First Loss 4,1% 7,0% 3,1% 1600 bp
Overall, the risk or financing costs for securitising the portfolio are:
Pool Rating BB+ BB- BBB-

96 bp 144 bp 79 bp
The transaction costs depend on the size of the portfolio. Based on market experience we
assume that upfront expenses for Structuring, Legal Advice, SPV, Trustee and Rating
Agencies are €1.5 Mln up-front and €150 M on-going p.a.. Depending on the pool size, it
leads to the following costs p.a.:
Pool Size 500 !Mln 1000 !Mln 3000 !Mln

7 bp 3 bp 1 bp

AMTE Final Report
In addition, underwriting and placement fees also depend on the pool rating, because they
are lower for senior tranches and higher for junior tranches:
Pool Size Pool Rating BB+ Pool Rating BB- Pool Rating BBB-
500 Mio. ! 3,4 bp 4,6 bp 3,0 bp
1.000 Mio. ! 3,2 bp 4,4 bp 2,8 bp
3.000 Mio. ! 2,8 bp 4,0 bp 2,4 bp
Finally, all-in costs p.a. over 3-mth Euribor (not including servicing fees that can be
assumed to be identical with/ without securitisation) are presented in the table below:
Pool Size Pool Rating BB+ Pool Rating BB- Pool Rating BBB-
500 Mio. ! 106 bp 155 bp 88 bp
1.000 Mio. ! 102 bp 152 bp 85 bp
3.000 Mio. ! 100 bp 149 bp 82 bp
In a typical FTPYME transaction, the guarantee by the Kingdom of Spain covers ca. 25% of
the AAA tranche and the spreads on guaranteed tranches are about 3 bp. (lower risk
premium and zero risk weight under Basel 1 and 2), thereby reducing the overall funding
costs of the originator by around 5 bp.
The FTPYME programme may have further positive effects:
 It may have helped to reduce transaction costs because it has led to a

certain degree of standardisation in Spanish SME securitisations
 The regular deal flow induced by the programme has helped to make
Spanish SME CLOs a rather liquid and well known asset class among
investors. This should lead to lower spreads
Capital relief is not the main objective for Spanish originators, nevertheless securitisation
will have effects (though there is no difference if a Kingdom of Spain guarantee is involved
or not):
 Under Basel 1 SME loans are 100% risk weighted, and the capital charge on
the portfolio will be 8%. Assuming the originator retains the Equity Piece
(risk weight 1250% / deduction), there is positive effect under Basel 1 at
least for the better rated pools. For the BBB- pool the capital relief will
amount to 4,9% (First loss piece 3,1%), for the BB+ pool it will be 3,9% and
for the BB- pool only 1%.
 It is more difficult to establish the effects under Basel 2 (Standard approach

vs. IRB Foundation resp. IRB advanced; Regulatory retail portfolio). The
worse the average pool rating the more capital might be released by
securitising. However, if the originator retains the Equity Piece there may not
be capital relief. If we assume that the portfolio consists of SMEs with an

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annual turnover of €30 Mln, the recovery rate is 50% and maturity 5 years,
we come up with the following figures:
Basel II Capital %
1-yr Avg Default Probability assumed 0,70% 1,70% 0,44%
On balance 8,9% 11,3% 7,6%
After securitisation (First Loss Retained) 4,1% 7% 3,1%
Capital relief 4,8% 4,3% 4,5%
The table shows that securitisation will lead to a substantial reduction of capital under
Basel 2 for all three types of portfolios.
2.4.2 EIF guarantees
The EIF guarantees can be used for granular and non granular SME pools and True Sale as
well as synthetic transactions at almost all levels of the capital structure, from AAA down to
B+. Mezzanine tranches wrapped by the EIF can be sold to investors at significantly lower
spreads (lower risk premium as the EIF AAA rated and 20% risk weight under Basel 1 and
zero risk weight under Basel 2).
However, it is very difficult to calculate a quantitative effect from the originator’s point of
view, because the EIF charges a commercial fee for the guarantees. Obviously, if the fee
corresponds to the premium charged by commercial investors, there will be no directly
measurable effect.
In addition, other factors play an important role:
 The EIF facilitates the placement of the tranches with investors (there is a
broader investor base for wrapped tranches). From the originator’s point of
view, the EIF thereby considerably removes uncertainty and supports the
marketing of a deal
 Smaller banks, in particular, profit from the EIF´s experience and knowledge
of the SME securitisation process. Usually, the EIF is involved very early in
the transaction and can aid the originator
 The EIF facilitates quicker execution and lower transaction costs
 Moreover, under certain circumstances (e.g., in very small and illiquid deals)
the EIF fee may be lower than the premium a commercial investor would
charge, because the EIF price will only cover the risk but does not
necessarily takes into account the “illiquidity premium”
The strong demand for EIF portfolio guarantees proves that these advantages – though
difficult to quantify – must be substantial.

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2.4.3 Portuguese Securitisation Scheme
In Portugal, the public fund created to support securitisation of SME loans is the FGTC
(Fundo de Garantia de Titularização de Créditos). FGTC intervenes by guaranteeing SME
securitization transactions, either through a direct support to the credits securitized or
through a support to the notes backed by this type of credits.
Douro SME Series 1 has been the first Portuguese transaction to benefit from the support
of FGTC which guarantees the payment of principal of an unrated class of notes that have
been subscribed by the originator.
FGTC guarantee has been formalised in a bilateral agreement between the originator and
FGTC and is not part of the public transaction documents. So, as we do not have any
information regarding fees charged by the FGTC, it is impossible to calculate a quantitative
effect.
However, if the FGTC charges a fee that is below the commercial premium, there is a
substantial advantage for the originator. For instance, if we assume the FGTC guarantees
the BB tranche of a securitisation of a granular SME pool with an average rating of BB+
and does not charge a fee - while a commercial investor would demand a premium of 400
bp. – the all-in costs of the transaction will be reduced by 5,2 bp. (size of the BB tranche
multiplied by the premium :1,3% * 400 bp.).
2.4.4 The KfW PROMISE programme
KfW set up a specific scheme in order to ease the SME securitisation transactions in
Germany and also in Europe: the PROMISE platform.
In order to calculate the effects of the PROMISE platform, we compare a securitisation with
KfW’s PROMISE platform to a stand-alone synthetic securitisation deal that uses a different
credit default swap counterparty.
The portfolio assumptions are the same as for the Spanish case. However, we assume a
synthetic transaction with a super senior credit default swap (Super Senior Swap). This
reduces the costs by around 12 bp. depending on the pool rating, so the synthetic deal
seems to be favourable for originators that seek capital release and do not use
securitisation as a source of funding.

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Tranche Rating Pool Rating BB+ Pool Rating BB- Pool Rating BBB- Spreads
Super Senior 82,4% 76,4% 84,9% 7 bp
AAA/Aaa 10,0% 11,0% 9,0% 35 bp
AA/Aa2 0,5% 1,1% 0,5% 45 bp
A/A2 0,5% 0,8% 0,6% 60 bp
BBB/Baa2 1,2% 1,9% 0,8% 100 bp
BB/Ba2 1,3% 1,8% 1,1% 400 bp
First Loss 4,1% 7,0% 3,1% 1600 bp
One important advantage of using the KfW platform is the zero risk weighting of KfW.
Because of the zero risk weighting, the credit default swap with KfW significantly reduces
the capital the originator has to hold for the portfolio after the synthetic securitisation. If the
originator would use a different bank credit default swap counterparty, the risk weight on
the Super Senior credit default swap would be 20% under Basel 1 (assuming that
mezzanine tranches are fully funded and that the first loss piece is retained by the
originator). Therefore, the advantage from the originator’s point of view is:
Under Basel 1:
Super Senior * (20%-0%) * 8% * Cost of Capital (net of Capital Benefit)
If we assume the (Net) Cost of Capital is 9% the advantage amounts to:

12 bp 11 bp 12 bp
(for amortising pools, the Super Senior Swap amortises and hence the advantage will be
reduced significantly after some time)
Under Basel 2:
For banks that use the standardised approach, the effects will be about the same as under
Basel 1 (KfW is zero risk weighted, both the senior tranches of a securitisation transaction
and a typical bank swap counterparty with a rating of AAA to AA- are 20% weighted)
Though KfW´s zero risk weight will still apply, for a bank that uses the internal ratings based
approach the situation will change. The risk weight of the Super Senior Swap as the most
senior tranche is reduced to 7% (AAA rated tranche with a granular pool), so there is no
economic incentive to hedge it with a counterparty with a higher risk weighting. Using KfW
will still have some benefit albeit much smaller than before:
Super Senior Swap * (7%-0%) * 8% * Cost of Capital (net of Capital Benefit)

4 bp 4 bp 4 bp
It should be noted that KfW does not retain the economic risk of the portfolio. Usually, the
first loss is retained or sold by the originator, the mezzanine tranches are sold to other

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investors and KfW executes a CDS on the Super Senior with a suitable counterparty (20%
weighted OECD bank). As a consequence, KfW has to hold capital against counterparty
risk. KfW charges a commercial fee for its services and, in particular, for the capital
commitment, and this fee must be subtracted from the benefits mentioned above. Since
these benefits depend on the originator’s Cost of Capital, it is quite difficult to quantify the
net effect (it will be substantial for a bank with high Cost of Capital, but negligible for a
bank with low Cost of Capital).
To summarise, there seems to be an advantage for some originators to use the PROMISE
platform. However, similar to the EIF case, the advantage depends on the originator’s
internal Cost of Capital.
Therefore, maybe other “qualitative” factors are more important and may induce substantial
cost savings for originators:
 The standardisation of the PROMISE structure (use of KfW certificates as

collateral, documentation etc.) leads to lower transaction costs (Rating
agencies, lawyers etc.). Obviously, this effect is more important for small
pool sizes where transaction costs are higher. KfW´s experience shows that
transaction costs can be 30%-50% lower for PROMISE deals compared to
other “non platform” deals. So for a small transaction (€500 Mln. Pool size)
the savings will probably amount to 2 or 3 basis points.
 Moreover, some observers note that the spreads on the mezzanine notes
seem to be lower for PROMISE deals (surely, one reason is the use of KfW
certificates as collateral, but it is also reasonable to assume that the profile
of the platform and the transparency is relevant for the investors). Again, this
can reduce the costs of a transaction by another 1 or 2 basis points.
 The PROMISE programme has contributed to a more rapid development of

the German and European SME securitisation market. It has helped to make
more information on SMEs and SME credit risk available to market
participants. The rating agencies as well as investors are now able to assess
the risks of SME loans and their performance and devote resources to
research and monitoring. Moreover, the continuous deal flow induced by
PROMISE is important, because it helps to broaden the investor community
and thus improve market liquidity (and reduce the liquidity premium for SME
CLO tranches). Over time it may also stimulate the securitisation of other
“sub asset classes” such as SME mezzanine loans. Once investors are
familiar with the specifics of SME securitisations, have built up
corresponding research capabilities and have accumulated positive
experiences with originators, they will be prepared to invest in more “exotic”
assets.
 Last but not least, the platform with its standardised features has helped to
reduce the execution time for originators (in particular, for repeat issuers).
This will also lead to substantial cost savings.

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3 Standardisation of SME Securitisation Transactions
The AMTE Working Group on SME securitisation has developed a standard format of data
to help banks prepare for transactions and for ease of reporting. Based on the different
requirements for origination and monitoring, the workshop focuses on two specific aspects
of a transaction.
The first aspect relates to the standardisation of transactions through the originators’
databases usually required, which aims to develop a consistent SME framework and a
standard set of quantitative information required by rating agencies.
The second aspect applies to the standardisation of investors’ information, which aims to
develop a consistent set of information for transaction management phase and for investor
reports.
3.1 Standardised Originator’s Data required for an SME securitisation
By nature, SME portfolios are heterogeneous and it is common to observe large

discrepancies in default characteristics and securities within the SME asset class. Besides,
the client data may not be available on an electronic format and originating banks have
difficulties in assembling consistent portfolio data, which does not facilitate the portfolio
risk analysis.
From a risk analysis standpoint, there is a clear distinction between granular and non-
granular portfolios. The former will be analysed with a standard ABS rating methodology
requiring, inter alia, historical data of defaults whereas the latter will require individual data
from financial statements and is more consistent with a CDO rating methodology. The
border between the approaches depends on the homogeneity and number of underlying
assets. To give a proxy, a portfolio of less than 1,000 exposures will be considered as non-
granular.
In addition, common to both granular and non-granular pools, a description of the

originator, its origination / marketing process / organisation and its credit policy / internal
score system is included in the qualitative due diligence and is not presented in the
document.
The standard sets of data detailed in Annex can eventually be adapted on a case by case
basis with the originator specificities.
3.1.1 Non Granular Portfolio
For non granular portfolios, due to the limited number of exposures, a standard ABS
approach can not be performed and the risk analysis performed by rating agencies will be
done at the obligor level, based on each individual rating. This rating will be either derived

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from a mapping of the originator’s credit scoring system or by using the rating agencies’
country specific credit models based on selected financial data of borrowers.
In addition to the individual rating, the static data to be provided on a name by name basis
by an originator for a SME securitisation of a non granular portfolio are presented in Annex
6.3.1.
3.1.2 Granular Portfolio
In the case of a sufficient granular and homogeneous pool of assets, an ABS rating
methodology will be performed in addition to the usual qualitative due diligence. The ABS
approach will be based mainly on satisfactory (i) historical data provided by the originator
and (ii) detailed information on the portfolio to be securitised.
3.1.2.1 Static Data
The static data set corresponds to the snapshot of the portfolio containing the SME loans
to be securitised. It will be used to build distribution tables of the eligible portfolio.
The static data to be provided by an originator for a SME securitisation of a granular

portfolio are similar to the data required for a non granular portfolio and are presented in
Annex 6.3.1.
3.1.2.2 Historical Data
In order to be as much efficient as possible, SME securitisation requires series of historical

data over a long time period. It consists in tables for gross defaults, recovery rates,
prepayment rates and delinquency rates.
The historical data to be provided by an originator for a SME securitisation of a granular

portfolio are presented in Annex 6.3.2.
3.2 Standardised Investor Report for an SME securitisation
For securitisation transaction and particularly with the SME asset class, investors need to
closely monitor the performance of the portfolio. The risk appreciation is paramount for
investors’ confidence and a standardised investor report will help them to feel comfortable
with a transaction.
Based on discussions among group members and opinions gathered from investors, the
AMTE working group has built a template of a standardised investor report to be used in a
SME securitisation transaction. The investor report contains information allowing
monitoring the transaction evolution, from a summary of the portfolio characteristics and
the trigger levels to a summary of the notes to be amortised. The investor report proposed
by the AMTE working group is a template and can be adapted in accordance with the
specificities of the transaction.

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For example, investors would like to have more often information about the breakdown of
the securitised portfolio
 by industrial sectors,
 by geographical (region) and,
 by turnover range.
The standardised investor report to be produced for a SME securitisation is presented in

Annex 6.4.

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4 Achieved consensus and Recommendations
4.1 Increasing efficiency of public sector intervention by catering the originators’

needs
The SME lending market is facing some regulatory challenges with the Basel II
implementation and its impact in terms of further growth is very difficult to assess due to
the heterogeneity of the SME asset class.
However, it is apparent that public sector activity has been successful in stimulating SME
securitisation. Indeed, the success of recent issues can be attributed to the role of public
sector agencies as demonstrated by the issuance volume in the countries where incentive
programmes have been established (approximately 60% of SME European securitisation
has occurred when cost saving enhancements from public sector agencies are available).
In the last few years, SME loan portfolios were securitised in a number of European
countries, amongst others in Germany, Spain, the UK, Switzerland, Portugal, Italy, the
Netherlands, Poland, Finland and the Czech Republic. Support as deal facilitators by a
number of public sector bodies (e.g. EIF, KfW and the Spanish FTPYME programme) have
in this context helped to develop the market. But despite significant achievements, there is
a strong case that the market for securitisation of SME loans is not developing as fast as
desired. E.g., the share of SME loans which were securitised compared to the size of
existing SME loan books is rather low. Reasons for this are manifold. One other obstacle
could be that SME loans are not at all a homogenous class but are diverse. As a
consequence, banks as well as investors treat this asset class with some caution.
Therefore, the market for securitising SME loans needs more vitality, and public sectors
could play an active role in supporting SME securitisation. From a policy standpoint, it will
be especially important to accelerate the building of a broader basis for the securitisation of
more “plain vanilla”, “easier to securitise” SME loans (like senior secured or unsecured
lending to SMEs with an internal rating at or close to investment grade). A mature
securitisation market is a precondition for the extension of the range of enterprises which
are suitable for securitisation – i.e. smaller SMEs and SMEs with non-investment grade
ratings. The benefit of more mature and specialised markets can nowadays be observed in
those countries in which SME securitisation has already gained a certain momentum and
where more sophisticated transactions take place. Notwithstanding, even in these
countries, the SME Market is not as far developed as for other asset classes. Looking at
the role of public sector support in more detail, the following starting points can be
identified to overcome the current difficulties accompanying SME securitisation:
 Due to its complex nature, securitisation generates transaction costs.

Especially for smaller banks, costs of securitisation can be prohibitively high.
Public sector support via the standard platforms can reduce these costs
considerably: Standardisation and repeated transactions allow service

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providers like rating agencies, legal advisors and investment banks to work
more efficiently as they become familiar with the details of the platform.
Public platforms can thus exploit economies of scale, and securitisation can
become economically more attractive to a wider range of potential market
participants. The cost saving argument is of special importance for
originators who conduct their first transaction and for originators with
smaller portfolios.
When standardised platforms require a high level of quality, with respect to
reporting standards, this sends a positive signal to investors and contributes
to liquidity. Successful examples in this context are KfW´s PROMISE
platform and the Spanish FTPYME-Program, which both contributed
decisively to the securitisation of SME loans.
 A further starting point for public support is to act as risk takers. Precisely,
public entities invest in subordinated tranches. This support is particularly
necessary in transactions which are difficult to securitise, e.g. transactions
with new asset classes and/ or portfolios with low granularity. Public
investment enhances the attractiveness of the whole transaction, as
investors feel more comfortable with participation of key investors. The
public support thus contributes as a catalyst to the creation of a liquid
secondary market. Furthermore, public investment yields high leverage, as
the volume of the transaction is large compared to the money invested by
the public risk taker.
In this context, also the support of the EU is of major importance to give
more momentum to market creation. Within the CIP (Competitiveness and
Innovation Framework) framework, a “Securitisation Guarantee window” is
being discussed, which would issue guarantees for junior and/or
subordinated tranches of SME backed securitisations. The rising support of
the EU documents the acknowledgement that securitisation is an effective
means to promote access to finance by European SMEs.
Public support by the EU or other public entities can also be very helpful in countries in
which the market for securitisation is underdeveloped, e.g. in Eastern Europe. In these
countries the growth in the supply of loans to SME is often restricted by the resources of
the domestic banks. Securitisation could allow to overcome these limits provided the risk
that securitisation can be seen as “by-passing” limits imposed by Regulators and IMF has
been addressed.

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4.2 Promotion of standardised data
The heterogeneity issue of SME portfolios has been raised and a move towards a greater
standardisation of data is likely to develop further this asset class. Moreover, financial
statements transparency is essential in the efficiency of portfolio selection process and
should be promoted in order to improve risk analysis and therefore investors’ appetite.
Based upon discussions among group members, the AMTE working group has built a
standard format for originators’ data and investors’ reporting. In addition to these
templates, the AMTE working group recommends the following solutions to reach the level
of standardisation required:
 Data transparency improvement through financial disclosure and individual

electronic data to be gathered and monitored with an annual frequency at
least. The last three years’ financial statements of the borrower are often
required in the case of a non granular portfolio.
 Identification of consistent SME portfolios in the originator’s database using

more accurate criteria (e.g. Basel II definitions) and other key parameters
such as maturity, amortisation type and industry sector. The type of security
used for a SME loan should also be clearly determined and valued as it
drives the recovery rate assumption, which has a high sensitivity on the
tranching.
 Internal scoring system enhancement and implementation of a mapping with

rating agencies credit ratings allowing more efficient portfolio analysis.

AMTE Final Report
5 Action Plan
5.1 Communication to third parties
Circulation of the report to relevant parties.
In addition, the group wishes to create a dialogue with entities influent on the topic, such
as:
 CESR
 ECB
 EFAMA
 European Commission
 FSA
 National banking federations (France, Germany, Spain)
 Associations dealing with securitisation such as the European Securitisation
Forum
5.2 Report promotion: Participation in future events
List of coming events where the report will be presented:
 Euro Debt Market Congress, November, 17th 2006, Frankfurt
 Euromoney Paris Forum, November, 27th and 28th 2006, Paris
http://www.euromoneyconferences.com/
 The Finance Dublin International Securitisation Conference 2006, November,

28th and 29th 2006, Dublin
http://www.financedublin.com/conference/home.php
5.3 Creation of a barometer
Different means to assess the impact of the recommendations built:
 repeat the bank survey every 12 or 18 months
 create a survey dedicated to investors to get their views on the SME asset
class

AMTE Final Report
6 Annexes
Annex 6.1: AMTE Working Group Composition
Annex 6.2: Results of the AMTE Pan European Survey
Annex 6.3: Standardised Originator’s Data required for an SME securitisation
Annex 6.4: Standardised Investor Report for an SME securitisation

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Annex 6.1: AMTE Working Group Composition
Members:
Corinne Lambert AMTE

Valérie Blanchin AMTE
Nathalie Esnault Calyon
Romain Munera CAAM
Olivier Amblard EIF
Alessandro Tappi EIF
Fabrice Garnier HSBC
Maxime Stevignon JP Morgan
Dr. Dieter Glüder represented by Dr. Omar Ranné KfW
Anke Brenken KfW
Cornelia Lamers KfW
Bruno de Pampelonne Merrill Lynch
Michel Madelain Moody’s
Henry Charpentier Moody’s
Philippe Madar Société Générale CIB
David Gravier Société Générale CIB
Niccolo Biancheri Société Générale CIB
Based upon the decision of the participants, in order to enhance efficiency and reflect their
natural interest, the workshop was divided into 2 groups,
Workshop 1: public bodies and SME securitisation
 Members: AMTE, Calyon, EIF, JP Morgan, KfW (Rapporteur), Merrill Lynch,

Moody’s, Société Générale
 Goal: formulate proposals geared at maximising the impact, efficiency and

catalytic effect of public sector intervention in SME securitisation
Workshop 2: standardisation
 Members: AMTE, CAAM, EIF, HSBC, JP Morgan, Moody’s, Calyon, Société

Générale (Rapporteur)
 Goal: develop a standard format of originators’ SME loans databases to help

banks prepare for transactions

AMTE Final Report
Annex 6.2: Results of the AMTE Pan European Survey
Questions regarding portfolio of SME loans
How would you qualify the level of diversification of your SME loans portfolio?
1= Good 2= Average 3= Insufficient
Overall
Number %
"1" - Good 29 66%
"2" - Average 14 32%
"3" - Insufficient 1 2%
Total 44 100%
In terms of exposure to single names

Number %
"1" - Good 35 80%
"2" - Average 8 18%
Total 44 100%
Geographically
Number %
"1" - Good 24 55%
"2" - Average 18 41%
Total 44 100%
By sector
Number %
"1" - Good 25 57%
"2" - Average 16 36%
Total 44 100%

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Present and future SME lending

Do you feel constrained in your SME lending by any of the following factors?
Risk exposure
Number %
Yes 15 34%
No 29 66%
Total 44 100%
Regulatory capital weighting

Number %
Yes 12 27%
No 32 73%
Total 44 100%
Concentration
Number %
Yes 10 23%
No 34 77%
Total 44 100%
Do you plan to increase SME lending in the coming years?

Number %
Yes 42 95%
No 2 5%
Total 44 100%
Would you increase SME lending if you could benefit from:
Risk transfer and liberation of credit lines in a cost efficient way?

Number %
Yes 36 82%
No 8 18%
Total 44 100%
Release of regulatory capital in a cost efficient way?

Number %
Yes 28 65%
No 15 35%
Total 43 100%

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Perception and knowledge of securitisation and public sector initiatives relating to

the latter
Have you previously securitised assets in general?

Number %
Yes 20 45%
No 24 55%
Total 44 100%
Have you planned to securitise SME loans?

Number %
Yes 19 43%
No 25 57%
Total 44 100%
Are you aware of any public initiatives aiding SME securitisation?

Number %
Yes 14 32%
No 30 68%
Total 44 100%
If you plan on using, or have already used SME securitisation, what advantages do you
identify for your bank?
(1= “highly pertinent”, 4= “not pertinent”).
Can help increase liquidity of my Balance Sheet

Number %
"1" 8 27%
"2" 7 23%
"3" 10 33%
"4" 5 17%
Total 30 100%
Can help manage SME risk

Number %
"1" 6 20%
"2" 15 50%
"3" 4 13%
"4" 5 17%
Total 30 100%

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Provides cost-effective funding

Number %
"1" 7 23%
"2" 9 30%
"3" 10 33%
"4" 4 13%
Total 30 100%
Provides cost-effective regulatory capital relief

Number %
"1" 7 23%
"2" 9 30%
"3" 9 30%
"4" 5 17%
Total 30 100%
Whether or not you have used, or simply plan on using, SME securitisation, what do you
view as the main difficulties tied to such transactions?
(1= “highly pertinent”, 5= “not pertinent”).
Lack of sufficient data/depth of information required

Number %
"1" 11 28%
"2" 12 31%
"3" 9 23%
"4" 4 10%
"5" 3 8%
Total 39 100%
The size of the portfolio is too small

Number %
"1" 9 23%
"2" 8 20%
"3" 6 15%
"4" 9 23%
"5" 8 20%
Total 40 100%
Portfolio is too concentrated on names or industries

Number %
"1" 2 5%
"2" 4 11%
"3" 9 24%
"4" 10 26%
"5" 13 34%
Total 38 100%

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Availability of IT systems to produce necessary data

Number %
"1" 4 11%
"2" 11 29%
"3" 9 24%
"4" 9 24%
"5" 5 13%
Total 38 100%
Costs of securitisation are too high

Number %
"1" 6 16%
"2" 15 41%
"3" 10 27%
"4" 4 11%
"5" 2 5%
Total 37 100%

AMTE Final Report
Annex 6.3: Standardised Originator’s Data required for an SME securitisation
6.3.1 Static Data for both Non Granular and Granular Portfolio
Field Number Field Name Field Definition
1 Current Date Date at the time of data extraction
2 Company Identification Number The company identification number determined by the country's regulator
3 Company Group name The company group name if the company is a subsidiary of a larger group
4 Company Recording Date Date at the time of the company's first identification to the originator
5 Country Code Country code or country name of the company / subsidiary to which the loan has been granted
6 Industry Sector Industry sector corresponding to the main business activities of the company
7 Geographical Region / Postcode Geographical region as defined by the country's administration or postcode of the company's headquarters
8 Company score Company score or rating if any, set by the originator based on its internal scoring system

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Field Number Field Name Field Definition
9 Initial Date Date at the time the loan has been granted
10 Initial Outstanding Balance Initial outstanding balance of the loan at the initial date
11 Current Outstanding Balance Current outstanding balance at the current date
12 Currency Currency of the loan
13 Maturity Date Maturity Date of the loan defined at inception
14 Fixed Interest Rate Fixed interest rate compounded annually used to calculate the interest payment of the loan
15 Floating Interest Margin Floating interest margin over the interest rate index if the loan has a variable interest rate
16 Interest Rate Index Interest rate index or market benchmark rate used as floating interest rate basis
17 Payment Frequency Payment frequency of instalments during the loan amortisation
18 Amortisation Type Linear / Bullet / Specific Amortisation
19 Loan Seniority Rank of the loan in the priority order of payment (Senior Secured/Unsecured, Subordinated…)
20 Loan Security Type Nature of the loan security (mortgage, pledge…)
21 Loan Collateral Type Nature of the loan collateral (real estate, securities…)
22 Loan-To-Vaue Ratio of the loan outstanding amout to the value of the guarantee
23 Originator Loan Share Originator's share of the loan securitised

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6.3.2 Historical Data for a Granular Portfolio
Cumulated Gross Default Rate
For a generation of loans (being loans originated during the same quarter), the cumulative gross default rate in respect of a month is
calculated as the ratio of:
- the cumulative defaulted amount (the total outstanding amounts of the loans that have defaulted) recorded between the month when
such loans were originated and the relevant month, to
- the initial outstanding amount of such loans
The definition of the default used by the originator has to be provided.

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N um ber of quarters after origination

Quarter of Originated
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
Origination Am ount
2001 - Q2 350 120 000 0.0% 0.5% 1.7% 3.2% 4.1% 4.7% 5.1% 5.2% 5.3% 5.4% 5.6% 5.6% 5.6% 5.8% 5.8% 5.8%
2001 - Q3 401 740 000 0.0% 0.3% 1.3% 2.2% 2.9% 3.4% 4.4% 4.3% 4.4% 4.6% 4.8% 5.1% 5.1% 5.2% 5.2%
2001 - Q4 398 070 000 0.0% 0.5% 2.0% 3.7% 4.7% 5.4% 5.9% 6.0% 6.1% 6.2% 6.4% 6.4% 6.4% 6.6%
2002 - Q1 304 460 000 0.0% 0.4% 1.6% 2.9% 3.8% 4.3% 4.7% 4.8% 4.8% 4.9% 5.1% 5.1% 5.1%
2002 - Q2 349 340 000 0.0% 0.3% 1.4% 2.3% 3.1% 3.6% 4.7% 4.6% 4.6% 4.9% 5.0% 5.3%
2002 - Q3 346 150 000 0.0% 0.3% 1.4% 2.4% 3.1% 3.5% 3.9% 4.0% 4.1% 4.2% 4.9%
2002 - Q4 361 740 000 0.0% 0.3% 1.0% 1.8% 2.4% 2.5% 3.1% 3.2% 3.5% 4.0%
2003 - Q1 295 420 000 0.0% 0.3% 0.9% 1.6% 2.3% 2.6% 2.8% 3.0% 3.1%
2003 - Q2 378 270 000 0.0% 0.2% 0.9% 1.4% 1.8% 2.1% 2.2% 2.4%
2003 - Q3 393 980 000 0.0% 0.3% 0.9% 1.5% 1.5% 1.6% 1.7%
2003 - Q4 436 130 000 0.0% 0.2% 0.8% 1.0% 1.0% 1.3%
2004 - Q1 391 170 000 0.0% 0.3% 0.7% 0.9% 1.4%
2004 - Q2 435 430 000 0.0% 0.2% 0.2% 0.3%
2004 - Q3 394 170 000 0.0% 0.2% 0.3%
2004 - Q4 422 290 000 0.0% 0.1%
2005 - Q1 199 620 000 0.0%

AMTE Final Report
Cumulated Recovery Rate
For a generation of defaulted loans (being loans defaulted during the same quarter), the cumulative recovery rate in respect of a month is
calculated as the ratio of:
- the cumulative recoveries recorded between the month when such loans were defaulted and the relevant month, to
- the gross defaulted amount of such loans
The definition of the timing and the amount of the recovery used by the originator has to be provided.
N um ber of quarters after default
Quarter of D efaulted
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
D efault Am ount
2001 - Q2 15 900 000 0.0% 53.1% 55.8% 58.5% 61.2% 63.9% 66.6% 69.3% 72.0% 74.7% 77.5% 80.2% 82.9% 85.6% 88.3% 91.0%
2001 - Q3 17 580 000 0.0% 52.8% 55.1% 57.5% 59.8% 62.2% 64.6% 66.9% 69.3% 71.6% 74.0% 76.4% 78.7% 81.1% 83.4%
2001 - Q4 18 220 000 0.0% 47.4% 50.9% 54.3% 57.7% 61.2% 64.6% 68.0% 71.5% 74.9% 78.3% 81.8% 85.2% 88.6%
2002 - Q1 17 040 000 0.0% 52.8% 55.0% 57.1% 59.2% 61.4% 63.5% 65.7% 67.8% 69.9% 72.1% 74.2% 76.4%
2002 - Q2 19 540 000 0.0% 53.1% 56.8% 60.6% 64.3% 68.0% 71.7% 75.4% 79.1% 82.9% 86.6% 90.3%
2002 - Q3 19 780 000 0.0% 45.3% 48.9% 52.6% 56.3% 60.0% 63.7% 67.4% 71.1% 74.7% 78.4%
2002 - Q4 21 120 000 0.0% 45.4% 49.3% 53.2% 57.1% 61.0% 64.9% 68.8% 72.7% 76.6%
2003 - Q1 22 620 000 0.0% 46.8% 51.2% 55.5% 59.9% 64.3% 68.6% 73.0% 77.3%
2003 - Q2 21 800 000 0.0% 54.2% 58.1% 62.1% 66.0% 70.0% 73.9% 77.8%
2003 - Q3 23 520 000 0.0% 60.1% 65.2% 70.3% 75.3% 80.4% 85.5%
2003 - Q4 20 240 000 0.0% 56.1% 62.9% 69.6% 76.4% 83.1%
2004 - Q1 18 500 000 0.0% 62.8% 71.1% 79.3% 87.6%
2004 - Q2 18 160 000 0.0% 56.8% 71.3% 85.8%
2004 - Q3 17 920 000 0.0% 59.7% 93.8%
2004 - Q4 17 500 000 0.0% 45.5%
2005 - Q1 17 680 000 0.0%

AMTE Final Report
Prepayment Rate Month Oustanding Annual Prepayment Rate

2001 - 06 1 706 200 000 11.8%
2001 - 09 1 739 050 000 13.3%
At a given month, the annual prepayment rate (APR) is calculated 2001 - 12 1 732 570 000 13.5%
2002 - 03 1 752 440 000 15.0%
from the monthly prepayment rate (MPR) according to the 2002 - 06 1 785 680 000 14.6%
following formula: 2002 - 09 1 824 000 000 12.8%
2002 - 12 1 873 380 000 13.3%
2003 - 03 1 874 050 000 12.9%
APR = 1 - ( 1- MPR )^12 2003 - 06 1 919 470 000 13.4%
2003 - 09 1 985 690 000 12.4%
The monthly prepayment rate (MPR) is calculated as the ratio of: 2003 - 12 2 079 310 000 11.4%
2004 - 03 2 148 850 000 11.4%
2004 - 06 2 240 430 000 12.0%
- the outstanding principal balance of all loans prepaid 2004 - 09 2 292 010 000 12.8%
2004 - 12
during the month, to 2 356 990 000 9.8%
2005 - 03 2 350 580 000 10.7%
- the outstanding principal balance of all loans (defaulted

loans excluded) at the beginning of the same month

AMTE Final Report
Month 1 Month 2 Months 3 Months 4 Months 5 Months 6 Months

Delinquency Rate
juin-01 1.3% 0.6% 0.3% 0.1% 0.1% 0.1%
juil-01 1.2% 0.5% 0.2% 0.1% 0.1% 0.1%
At a given month, the delinquency rate is calculated as the ratio août-01 1.0% 0.6% 0.2% 0.1% 0.1% 0.1%
sept-01 1.3% 0.6% 0.3% 0.2% 0.1% 0.1%
of:
oct-01 1.4% 0.6% 0.3% 0.2% 0.1% 0.1%
nov-01 1.0% 0.6% 0.3% 0.2% 0.1% 0.1%
- the outstanding principal balance of all delinquent loans, déc-01 0.9% 0.5% 0.2% 0.1% 0.1% 0.1%
janv-02 1.5% 0.6% 0.2% 0.1% 0.1% 0.1%
to févr-02 1.4% 0.5% 0.4% 0.1% 0.1% 0.1%
mars-02 1.3% 0.5% 0.2% 0.1% 0.1% 0.1%
- the outstanding principal balance of all loans (defaulted avr-02 1.2% 0.4% 0.2% 0.1% 0.1% 0.0%
mai-02 1.1% 0.4% 0.2% 0.1% 0.1% 0.1%
loans excluded) at the same cut-off date juin-02 1.1% 0.4% 0.1% 0.1% 0.0% 0.0%
juil-02 1.1% 0.3% 0.1% 0.1% 0.0% 0.0%
août-02 1.0% 0.3% 0.1% 0.1% 0.0% 0.0%
sept-02 1.1% 0.4% 0.2% 0.1% 0.0% 0.0%

AMTE Final Report
Annex 6.4: Standardised Investor Report for an SME securitisation
Date and Transaction Status Information
Investor Report Issue Date

Issue Date
Accrual Period [Start and include]
Actual Number of Days
Reference Date
Report Date
Calculation Date
Revolving Period YES/NO ?
Acceleration Event YES/NO ?
Amortisation Event YES/NO ?

AMTE Final Report
Key Transaction Data
Notes Summary (Amounts are in ! Mln)
Original Current Legal Final Initial Current Rating

Class Balance % of Total Balance % of Total Maturity Rating Rating Review
Senior CDS (*) 1 425 000 95.0% 865 000 92.0% sept-15 Aaa/AAA Aaa/AAA YES/NO ?
Class A+ (*) 7 500 0.5% 7 500 0.8% sept-15 Aaa/AAA Aaa/AAA YES/NO ?
Class A 15 000 1.0% 15 000 1.6% sept-15 Aa2/AA Aa2/AA YES/NO ?
Class B 9 000 0.6% 9 000 1.0% sept-15 A3/A- A3/A- YES/NO ?
Class C 18 000 1.2% 18 000 1.9% sept-15 Baa3/BBB- Baa3/BBB- YES/NO ?
Class D 9 000 0.6% 9 000 1.0% sept-15 Ba1/BB+ Ba1/BB+ YES/NO ?
Class E 6 000 0.4% 6 000 0.6% sept-15 Ba3/BB- Ba3/BB- YES/NO ?
Class F 3 000 0.2% 3 000 0.3% sept-15 B2/B B2/B YES/NO ?
Class G 7 500 0.5% 7 500 0.8% sept-15 NR/NR NR/NR YES/NO ?
Total 1 500 000 100.0% 940 000 100.0%
(*) for a synthetic transaction
Default Ratio
Cumulative aggregate Principal Outstanding Balance of all Purchased Receivables became Defaulted Receivables from Closing Date
Aggregate Principal Outstanding Balance of all Purchased Receivables on Closing Date
Default Trigger Level for Amortisation Event at the Relevant Calculation Date
Default Trigger Level for Acceleration Event at the Relevant Calculation Date

AMTE Final Report
Delinquency Ratio
Overdue Principal Outstanding Balance of all Purchased Receivables which are Delinquent Receivables
Performing Receivables Principal Balance
Delinquency Ratio Trigger
Prepayment Rate
Cumulative aggregate Prepayments of the last Collection Period

Aggregate Principal Outstanding Balance of all Purchased Receivables on Closing Date
Summary of Portfolio Characteristics
At closing At reference Date
Number of Loans
Number of Obligors
Minimum Loan Size
Maximum Loan Size
Average Loan Size
Outstanding Balance % out of total Originator's Pool

Outstanding Balance % out of Securitised Pool
Outstanding Balance (in ! Mln)
Average Outstanding Balance per Contract (in ! Mln)

AMTE Final Report
At closing At reference Date Trigger levels

if any
Receivables Secured by First Ranking Real Security

Weighted Average Loan to Value of all SME loans benefiting from a First Ranking Real Security
Loans unsecured or guaranteed only by a Generic Security
Weight of Receivables with Fixed Interest Rate
Weighted Average Interest Rate if Fixed (%)
Weighted Average Margin if Floating (%)
Weighted Average Spread of SME loans
Max Weight of All Purchased Receivables of a Single Borrower
Weight of Top Ten Borrowers Purchased Receivables
Weight of the Non-Amortising Receivables with Remaining Term > 1 year
Weight of Receivables with Quarterly (or less) Interest Instalments
Weighted Average Original Term (in months)
Weighted Average Remaining Term (in months)
Weighted Average Seasoning (in months)

AMTE Final Report
Cash Flows and possible Replenishment Amounts
Collection Period
Purchase Condition
Interest Collections
Interest in respect of late payments
Amounts to be Received under the Hedge Agreement
Recoveries from Defaulted Receivables
Collections on Overdue Principal Instalments
Interest accrued on the Transaction Accounts
Overdue Principal Instalments

Principal outstanding balance of Receivables which became defaulted
less the Principal instalments of of these receivables already taken into account on previous Calculation Dates
Revenue Shortfall (if any) calculated on the last Payment Date
Receivables Principal Amortised Amount

Scheduled Principal Collections
Principal instalments prepaid
Principal outstanding balance of Receivables which became defaulted during the Collection Period
less the Principal instalments of these receivables already taken into account on previous Calculation Dates
Replenishment Amount if any
Excess Available Principal Amount

AMTE Final Report
Issuer Available Funds
Amounts standing to the credit of the Transaction Accounts

less amounts on the Hedge Collateral Account or any Witheld Amount
less amount on the Excess Available Principal Account if Purchase Condition = N
less the Minimum Cash Reserve Amount
Collections
Interest received in respect of Autorised Investments
Amount received from the Originator in respect of re-assignment of Receivables
Proceeds of sale of any Receivables under the Transaction Documents
Interest earned on the Transaction Accounts other than the Hedge Collateral Account
Amounts received by the Issuer under the Transaction Documents
Amounts to be received under the Hedge Agreement

AMTE Final Report
Relevant Priority of Payments
Senior Expenses + Issuer Management Fee

Issuer Expenses
Expense Account Required Amount
Servicer Fee
Payments to the Hedge Counterparty
Interest Amount due on Senior Notes
Purchase Price of Subsequent Receivables

Excess Available Principal Amount
Cash Reserve Required Amount
Subordinated Termination Payment to the Hedge Counterparty
Any other amounts due under the Transaction Documents
Interest Amount due on Junior Notes
Interest and principal under the Subordinated Loan
Additional Return

AMTE Final Report
Hedge Agreement
Notional Amount
3M Euribor
Amounts to be received
Performing Receivables Principal Balance of Fixed Rate Loans

Swap Fixed Rate
Performing Receivables Principal Balance of Floating Rate Loans
Weighted average Euribor index rate
Amounts to be paid
Cash Reserve
Minimum Cash Reserve Amount

Cash Reserve Required Amount

AMTE Final Report
Collateral Level Information
Theoretical Amortisation Schedule assuming 0% prepayments and 0% defaults
Months after the Principal Interest Outstanding

Reference Date Instalments Component Component Balance
1 month
2 months
3 months
4 months
5 months
6 months
7 months
………

AMTE Final Report
Theoretical Amortisation Schedule in a base case scenario
Months after the Principal Interest Outstanding

Reference Date Instalments Component Component Balance
1 month
2 months
3 months
4 months
5 months
6 months
7 months
………
Third Parties Ratings
Initial Rating Current Rating
Originator
Servicer
………

AMTE Final Report
Breakdown of the Pool Outstanding Balance by Interest Rate Type
Interest Rate Type At closing % of Total At reference Date % of Total
Floating
Fixed
Capped
Breakdown of the Pool Outstanding Balance by Loan Type
Loan Type At closing % of Total At reference Date % of Total
Amortising
Revolving
Bullet
Breakdown of the Pool Outstanding Balance by Redemption Type
Redemption Type At closing % of Total At reference Date % of Total
Direct Debit
………

AMTE Final Report
Breakdown of the Pool Outstanding Balance by Payment Frequency
Frequency At closing % of Total At reference Date % of Total
Annual
Semi-annual
Quarterly
Monthly
Breakdown of the Pool Outstanding Balance by Financing Objectives
Financing Objective At closing % of Total At reference Date % of Total
Working Capital
Guarantee
………

AMTE Final Report
Breakdown of the Pool Outstanding Balance by Securities
Securities At closing % of Total At reference Date % of Total
Mortgage
Personal Guarantee
Banking Deposit
Pledge on shares…
………
Breakdown of the Pool Outstanding Balance by Sector of Activities (*)
Sector At closing % of Total At reference Date % of Total
Aerospace & Defense

Air transport
Automotive
Electronics
Equipment leasing
Industrial Equipment
Insurance
Utilities
………
(*) Sectors of activities defined according to a Rating Agency split

AMTE Final Report
Breakdown of the Pool Outstanding Balance by Geographical Region
Region At closing % of Total At reference Date % of Total
Region 1
Region 2
Region 3
………
Breakdown of the Pool Outstanding Balance by Turnover (in !)
Turnover At closing % of Total At reference Date % of Total
< 1,000,000
1,000,000 <= < 5,000,000
5,000,000 <= < 10,000,000
10,000,000 <= < 20,000,000
20,000,000 <= < 30,000,000
30,000,000 <= < 40,000,000
40,000,000 <= < 50,000,000

AMTE Final Report
Breakdown of the Pool Outstanding Balance by Internal Rating
Internal Score At closing % of Total At reference Date % of Total
1
2
………
10
Concentration: 10 biggest borrowers of the pool
Borrower ID At closing % of Total At reference Date % of Total
1- Borrower 159
2- Borrower 16
3- Borrower 147
………
10- Borrower 278

AMTE Final Report
Breakdown of the Pool by Number of Employees
Number of Employees At closing % of Total At reference Date % of Total
< 10
10 <= < 20
20 <= < 50
50 <= < 100
100 <= < 150
150 <= < 200
200 <= < 250
Breakdown of the Pool by Average Age of SME's (in Years)
Average Age At closing % of Total At reference Date % of Total
0-3
4-6
7 - 10
11 - 15
> 15

AMTE Final Report
Breakdown of the Pool by Relation Age between the SME and the Originator (in Years)
Relation Age At closing % of Total At reference Date % of Total
0-3
4-6
7 - 10
11 - 15
> 15
Performance of the Underlying Pool
Original Pool
The tables presenting the original pool performance for a granular portfolio are included in the quantitative due diligence report. Please refer
to the 2.2 historical data section of the Standardised Originator’s Data.
Securitised Pool / Transaction Performance
The tables presenting the actual performance of the securitised pool for a granular portfolio should be reproduced on the same basis than the
tables for the original pool.

Supporting SME Financing Using Securitisation Techniques

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Supporting SME Financing using

AMTE Final Report

Supporting SME Financing using Securitisation Techniques 2

Supporting SME Financing using Securitisation Techniques 3

1 Overview of the SME securitisation market

1.1 A few words on the European securitisation market

Among benefits of securitisation, ABS transactions help issuers to get funding,

Supporting SME Financing using Securitisation Techniques 4

Source: SG Credit Research

Funded ABS issuance volumes in ! Bln by asset type (excluding RMBS)

2004 2005 2006

Source: SG Credit Research

1.2 Review of completed and pending works by other entities

Supporting SME Financing using Securitisation Techniques 5

Some previous studies and Working Papers on SME Securitisation by other

EUROPEAN COMMISSION DG ENTERPRISE AND INDUSTRY, Study on asset

EUROPEAN COMMISSION and FBE Fifth EU Bank-SME Round Table February

EUROPEAN INVESTMENT FUND: Securitisation as a means to enhance SME

 European ABS Markets and SME Securitisation Alexander

 Impact and Use of ABS on SME Finance – Results of a study for a

 Banks and their SME Business: The role of securitisation by Thomas

 The EIF’s Experiences in SME securitisation – a few case studies,

 New Developments in the European Capital Market to Close the

 Mezzanine Financing for European SMEs – Demand & Supply or the

Supporting SME Financing using Securitisation Techniques 6

 Securitisation of Mezzanine SME Loans – An overview of Existing

 Mid Cap Bonds and Securitisation of SME Bonds – Access to the

 The AMTE Working Group on “SME Securitisation” – Aims and first

Supporting SME Financing using Securitisation Techniques 7

European SME issuance volumes in ! Bln from 2000 to 2006 YTD

Funded Unfunded Total

Source: SG Credit Research

Supporting SME Financing using Securitisation Techniques 8

Funded SME issuance volumes in ! Bln from 2000 to 2006 YTD

Source: SG Credit Research

Unfunded SME issuance volumes in ! Bln from 2000 to 2006 YTD

Source: SG Credit Research

Supporting SME Financing using Securitisation Techniques 9

1.4 Challenges of the market

Supporting SME Financing using Securitisation Techniques 10

2 Public Sector Bodies and SME Securitisation

2.1 Rationale for intervention of public sector agencies

Public sectors bodies have implemented proposals geared at maximizing the

In addition, securitisation could provide a mechanism whereby higher risk SME

Supporting SME Financing using Securitisation Techniques 11

2.2 Rationale for originators

2.2.1 Regulatory: Basel II Capital Weights on SME assets

 The range of one-year probability of default taken into account is

 The turnover is assumed to be €25m, which is in line with Basel II

BBB BBB- BB+ BB BB- B+

Supporting SME Financing using Securitisation Techniques 12

Impact of Maturity on Basel II Capital Weights

BBB BBB- BB+ BB BB- B+

2.2.2 Why securitise SME credit risk exposures?

Further advantages brought by SME Securitisation are the portfolio management

Supporting SME Financing using Securitisation Techniques 13

Gaining a better understanding of the needs and concerns faced by originators of

Purpose of the survey and benefits

The proposed survey on securitisation is designed to gain a better understanding

 the primary motivations of institutions which are securitising SME

 the main concerns and difficulties faced by originators wishing to

 how eventual difficulties are linked to the characteristics of the

Form and results of the survey