Winner: Project Triton

Piraeus Bank’s Project Triton has won the Transaction of the Year category in SCI’s Capital Relief Trades Awards for being for the first synthetic STS securitisation of performing shipping loans in Europe. The US$700m deal – which was arranged by Alantra – paves the way for banks to manage the risks and capital requirements of ship lending more effectively going forward.

Shipping finance has had a volatile performance history in the past, with the bail-out post-financial crisis of various large lenders in the sector. In a sector where the downside appears to outweigh the upside, the value for a bank of being able to transfer risk and manage its capital position efficiently is even greater, according to Alantra md Holger Beyer.

Triton represents the second-ever shipping CRT, following a Citi transaction from 2013. As such, opening up a new asset class was a further challenge.

“Specialist knowledge is required to lend in the shipping space; therefore, successfully executing an SRT is an exciting development. But it did not start as an easy proposition, given that there is little overlap between shipping industry experts and SRT investors,” observes Beyer.

Fortunately, the investor in Triton – Christofferson, Robb & Company - combines an understanding of shipping finance with a considerable track record in the SRT market. “CRC has in-house shipping expertise and we were able to demonstrate that within the firm’s macro view on the industry, Piraeus runs a solid lending business which is risk-managed properly,” Beyer explains.

He acknowledges that Triton would have been a much harder sell if the investor hadn’t had expertise in shipping. On the other hand, for regular shipping investors, SRT is a strange proposition – they typically either lend directly or buy non-performing loans and are not used to relying on banks’ underwriting processes. Furthermore, if defaults occur, they are used to controlling the recovery process.

“When assessing SRT applications for the asset class, regulators are keen to understand the underlying risk - with an emphasis on correlation, given that senior retained tranches have much lower risk weights,” notes Beyer. “As more deals are completed in the space, we’d like to see investors strengthen their expertise in shipping. By building on this momentum, shipping will hopefully become more relevant and we can create a new sector in the SRT market.”

Any single sector portfolio is affected by correlation between loans in respect of PDs and LGDs, which are an amplified function of global economic conditions. Although there is some diversification across bulk, container and tanker vessels, compared to SME or corporate portfolios, shipping deals are less diversified.

The transaction involved Piraeus entering into a financial guarantee, with an SPV acting as the protection seller, buying protection from losses on a mezzanine tranche (from 2.5% to 10%). The risk on the other tranches was retained by the bank, together with 5% of the total portfolio to comply with regulatory risk retention requirements.

The protection seller issued CLNs to the investor and used the proceeds to purchase eligible collateral to secure its obligations under the guarantee and the notes. The deal features a two-year revolving period, allowing Piraeus to replenish amortised loans, and a time call option after 4.8 years. The transaction uses pro rata amortisation that switches to sequential if certain performance triggers are breached.

The originator has received approval that the transaction transfers significant risk and meets the STS criteria, resulting in a reduction of circa €400m in risk weighted exposure amounts. The deal was completed within eight months and settled in June 2022.

Auld Partners, a boutique shipping finance firm based in London, acted as Alantra’s expert advisor on the transaction.

Honourable mention: Project K2 (mBank, PGGM, UniCredit)
In recognition of the deal being the largest-ever securitised portfolio in Central and Eastern Europe (at PLN9bn); the first-ever STS synthetic securitisation from Poland; the first Polish SRT trade with a credit-linked note issued directly by a bank; and the first transaction in the Polish market executed entirely with a private sector investor.

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