Apr 17, 2024
IDB Invest Pushes Securitization Plan to Boost Lending for Riskier Firms
, Bloomberg News
(Bloomberg) -- IDB Invest, which is part of the Inter-American Development Bank Group, is pushing ahead with a project to use securitization to increase lending for riskier companies in Latin America.
Banco Santander SA and Clifford Chance are advising the program, which seeks to use synthetic asset-backed securities as a way to boost investment for smaller and riskier companies, according to James Scriven, the chief executive officer for IDB Invest, the bank’s private-sector arm. It’s reaching out to potential investors with a first transaction, pooling a loan portfolio worth between $750 million and $1 billion.
“We’re not here to invest only our own money, we’re here to create the environment through IDB public sector or through IDB Invest to be able to crowd in the private sector” said Scriven. “This is not an instrument widely used by multilaterals.”
Synthetic securitizations are growing in popularity as a way for lenders to transfer the risk of loan losses to investors, who purchase a derivative or credit-linked note at an attractive yield. Unlike classic cash securitizations, the assets remain on the lender’s books.
For IDB Invest, it’s also a way to meet sustainability goals and lend to companies that were historically seen as too vulnerable. Increasing the use of securitization was among the recommendations included in last year’s Group-of-20 report with the aim of boosting the lending capacity of multilateral development banks by about $200 billion over the next decade.
Currently, the average credit rating for companies borrowing money from IDB Invest is BB, which sits at the higher-end of the sub-investment grade category, said Scriven. “We’re gonna be going down from that,” he added.
IDB Invest plans to expand in Argentina, whose government is rated CCC by S&P Global Ratings, with plans to lend as much as $700 million a year. It’s already provided some financing to agriculture companies, lithium miners and wind and solar power producers, Scriven said.
Scriven said the lender has been also reaching agreements with reinsurance providers for another type of synthetic risk transfer, called unfunded credit protection, which would guarantee certain transactions by the IDB.
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