Winner: FCT Greendom 2021

Societe Generale’s FCT Greendom 2021 has won Impact Deal of the Year in this year’s SCI Capital Relief Trades Awards. Greendom marks the first CRE-backed transaction to be structured in compliance with the new STS synthetic securitisation regulatory framework introduced to assist in post-Covid-19 crisis recovery.

The transaction references a €1bn portfolio of more than 50 high-quality commercial real estate facilities, a decidedly unusual underlying asset class for synthetic securitisations. “Considering that the pool was not very granular, we provided a high level of disclosure with investors – investors which we also had to identify as suitable, who were able to perform some kind of fundamental credit analysis on a line-by-line basis, so they could acquire very good knowledge of the portfolio and price it accordingly,” explains Pascale Olivie, director in asset-backed products at Societe Generale.

The €1bn underlying portfolio was originated by the bank across multiple jurisdictions and with a 4.5-year weighted average life and weighted average loan-to-value of just over 50%. “The first challenge was to select a portfolio and achieve a minimum level of granularity and diversification – which was quite challenging, considering the specific nature of the asset class, even though we have a large book of commercial real estate,” states Olivie.

The transaction was supported by longstanding SG partner AXA IM, as investor, with SG operating as originator, sole arranger and sole lead manager. Greendom’s credit protection is also structured as a funded financial guarantee (repackaged into notes issued by a French FCT) and covers a junior tranche of the portfolio.

The bank retains the senior tranche, as well as an unhedged economic interest of 10% of each reference obligation. Additionally, the trade features a revolving period of one year, and during this period the bank will be able to include other eligible assets in the structure to compensate for the natural amortisation of the portfolio.

“When you consider all of the features of the pool (asset type, asset country), it is quite diversified, and it was a discussion we had and approach we share to demonstrate that by the end of the day this portfolio is rather diversified,” explains Olivie.

She continues: “Typically each asset repayment is backed by the asset itself, as well as the cashflow from the tenants, so I would say because of the assets themselves and this cashflow structure the portfolio was quite diversified.”

The portfolio itself was comprised of 36% warehouse, 35% office, 17% retail, 4% residential, 2% hotel and 6% accounting for other assets. “The portfolio is representative of our books. There is a significant amount in Europe and in France, but also the US and elsewhere,” says Olivie.

She adds: “We also try to be representative of the asset type – which is why we have a significant amount of warehouse, office and retail. Again, the idea being to set up a risk distribution solution on the core book of our commercial real estate business.”

By transferring credit risk, Greendom frees up additional lending capacity for new origination. With the transaction, SG is able to increase its involvement in the financing of Positive Impact Commercial Real Estate (PI CRE) loans, committing to ambitious volumes of PI CRE underwritten by SG by the close of this year.

The transaction also features a pricing adjustment mechanism, which works to incentivise the bank to reach the objective and demonstrates willingness of the investor to foster the development of PI CRE loans.

“We had to identify the right partner and design the right portfolio,” expands Olivie, “which is why this was a bilateral trade, because we needed to find a partner who had both good knowledge of the underlying asset class and of our books, so they could really appreciate the quality of our underwriting in CRE and quality of each deal itself.”

Olivie continues: “The logic of the risk-sharing partnership was very strong in this trade, and very different from the usual SME transaction, which is based on statistics, is very diversified and is on an undisclosed basis.”

The trade also features an innovative tap feature, with a €500m tap once already seen in Q2 earlier this year – increasing the €1bn portfolio to €1.5bn. The feature proportionally increased the size of the deal under the same economic conditions - subject to shared agreement with the investor to the additional loans.

“The innovative tap feature allows SG to reload the portfolio above the initial amount of the portfolio, offering visibility to the business for portfolio ramp-up,” comments Olivie.

SG has operated in the risk transfer space as a consistent and innovative issuer for many years - expertise which Greendom reflects as an innovative transaction fully embedding ESG strategy to meet the sustainability commitments of the bank. Greendom is a landmark transaction achieved by Societe Generale with sustainable use of proceeds: with the additional headroom for new production freed up with this transaction, the bank is committed and incentivised to increase its involvement in the financing of PI CRE loans. Positive Impact CRE loans include those that support access to affordable housing, greater access to education, and loans financing buildings with high levels of energy efficiency.

Honourable mention: Project Frida II (IFC, Santander)
In recognition of the deal being the first emerging markets SRT with a climate risk mitigation objective. The PLN2.4bn Polish consumer loan transaction was the IFC's first SRT investment in Poland and its first where the underlying is not SME loans; it also contained a novel bilateral option to upsize the portfolio.

For the full list of winners and honourable mentions in this year’s SCI Capital Relief Trades Awards, click here.