Greece’s Alpha Bank (ACBr.AT) is to raise about $510 million from a deal backed by shipping loans, one of the first of its kind in Europe for nearly a year, finance industry and Alpha bank sources said.
The fundraising, arranged and financed by Citigroup (C.N), bundles together approximately 35 individual shipping loans with an average life of two and a half years with a five-year final maturity, industry sources said.
A Citi spokesman declined to comment.
The deal represents efforts by industry players to seek ways to raise money and plug a multi-billion dollar funding gap, caused by several European banks pulling out of the shipping sector or scaling back exposure in response to tougher regulations after the financial crisis.
“Securitisation transactions are part of Alpha’s program. They are a tool to differentiate the bank’s funding sources,” one Alpha bank source said.
Sources told Reuters in June that Alpha Bank, Greece’s fourth-largest lender, planned to securitize about 1 billion euros ($1.24 billion) of shipping loans and expected to raise about 500 million euros in the transaction.
Industry sources said the private deal was a secured financing with the loans to be placed in a special purpose vehicle. Alpha Bank will act as the servicer of the loans, which include financings provided for dry bulk and oil tanker ships. The size of the underlying portfolio was $850 million, they said.
“What it does is it frees up Alpha Bank’s books to enable them to start providing new finances,” one finance industry source said.
The deal for Alpha Bank follows a similar-styled transaction that Citi arranged in Dec. 2013 for German lender HSH Nordbank [HSH.UL], which raised up to $700 million from a portfolio of 30 shipping loans.
The shipping industry has suffered one of its worst ever downturns in the past five years. Ship owners ordered large numbers of vessels between 2007 and 2009, just as the global economy started to slow.
Prospects have brightened in the past few months as world trade picks up and the glut of ships is absorbed. Recovery though remains fragile. Private equity groups and hedge funds are targeting investment in shipping, but funding for the sector is set to remain tight going forward.
Europe’s asset-backed market has still not recovered from the financial crisis of 2008-2009, when this process for raising money, also known as securitization, became tarnished by high-risk deals in the United States.
The European Central Bank and Bank of England have both said they want it to revive to help provide money for credit-starved businesses and revitalize the region’s economy.
Alpha, which passed the European Central Bank’s stress test last month, reported a third-quarter loss this week because of costs related to a voluntary redundancy scheme for its staff.
“Not only does it (the asset-backed deal) provide Alpha Bank with dollar funding, it’s a private market solution for its asset/liability mismatch and reduces reliance on official money,” another industry source said.