Credit Agricole finalises $2bn trade finance synthetic

One year on and Credit Agricole has followed up its Premium Green 2017-2 $3 billion synthetic securitisation of green project loans with a $2 billion synthetic risk transfer to the IFC of the vast majority of the bank’s emerging markets trade finance loans (although some corporate debt is also included).

The IFC did its first trade finance loan synthetic with Credit Agricole in 2014 – a similar $2 billion two-year deal with a one-year extension. During the lifetime of that deal around $6 billion of emerging markets short term trade finance debt passed through the IFC guarantee.

In the latest deal the IFC is providing a guarantee for an $85 million second loss slice of the portfolio. The first loss, retained by Credit Agricole, is less than $20 million. Above that, it is covered for any capital loss arising from loss of principal or interest up to $85 million.

The guarantee has an initial two-year maturity, during which the short term assets it covers are replenished with new ones. Consequently, the guarantee tenor can be extended if all parties agree. The deal is said to transfer up to 90% of the risk on the portfolio, although no specific amount has yet been made public.

Some of the freed-up capital will be used to back $510 million of social loans to support health, education and other key services, as well as infrastructure projects, in emerging markets. If Credit Agricole has difficulty in generating enough of these loans within two years, it will grant pricing reductions to potential borrowers to stimulate origination.

Because Credit Agricole is earning a superior risk-adjusted rate-of-return from the deal, all of the transaction’s performance indicators will be tracked by the IFC’s Development Outcome Tracking System to ensure that the social loan commitment is met and existing trade finance lending volumes are maintained or grown.