1.
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Scope of the Financial Instrument | By securitising assets, Financial Intermediaries aim at releasing regulatory and economic capital and/or obtain new funding sources allowing the Financial Intermediary to originate New Debt Finance to eligible Final Recipients (to build an Additional Portfolio).
The Financial Intermediary will receive a guarantee/investment from the EIF to cover the Securitised Portfolio in exchange for the payment of a Fee and commit to originate a portfolio of New Debt Finance (subject to a minimum Leverage Effect).
The EIF acts as day-to-day manager of the Financial Instrument managing the MS contribution, the EU Contribution (i.e. contributions under [the COSME Regulation] AND/OR [the H2020 Regulation], the EIF Contribution and the credit risk taken from the EIB and possibly national promotional banks.
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Transaction structure | Either cash (‘true sale’) or synthetic (‘unfunded’) securitisations are allowed.
A cash securitisation is a transaction in connection with which an originator (the Financial Intermediary) securitises assets by pooling them into the Securitised Portfolio and selling the Securitised Portfolio to a special purpose entity (the ‘SPE’). The SPE finances the purchase of the Securitised Portfolio through the issuance of notes secured by such assets (Asset-Backed Securities — ‘ABS’). The proceeds from the issuance of these notes are used by the SPE to pay the purchase price of the Securitised Portfolio to the Financial Intermediary.
In a synthetic securitisation, the Financial Intermediary retains the relevant assets on its balance sheet and the EIF covers part of the risk on the Securitised Portfolio. This potentially results into capital relief for the Financial Intermediary.
The EIF shall tranche the Securitised Portfolio according to the risk of the underlying transactions.
The Junior Tranche shall consist of the riskiest part of the Securitised Portfolio up to a predefined percentage, taking into consideration the characteristic of the portfolio, the credit enhancement requirements and the Leverage Effect requirement for MS Contribution. The MS Contribution will cover up to 50 % of the Junior Tranche, while the residual portion of the Junior Tranche shall be retained by the Financial Intermediary. This may typically result in 100 % of such amount being absorbed for the coverage of net losses under the Portfolio.
The Mezzanine Tranche shall consist of the second riskiest part of the Securitised Portfolio and comprise three sub-tranches using a combination of resources from the EIF, the EU budget and the Managing Authority. In particular, the MS Contribution shall cover the risk of the Lower Mezzanine Tranche. The contribution under [the COSME Regulation] and/or [the H2020 Regulation] shall cover the risk of the Middle Mezzanine Tranche. The EIF Contribution shall cover the risk of the Upper Mezzanine Tranche.
The size of the Mezzanine will be determined by EIF taking into consideration the characteristics of the portfolio, the credit enhancement requirements and Leverage Effect requirement for MS Contribution.
The Lower Mezzanine and the Middle Mezzanine Tranches shall be up to [predetermined percentages of the Securitised Portfolio.
The Senior Tranche shall consist of the residual risk of the Securitised Portfolio and be funded/retained by using a combination of resources from the EIB Group up to an agreed maximum amount and potentially national promotional banks and national guarantee schemes and other investors.
The Senior and the Upper Mezzanine Tranches shall be defined at a level such that the risk shall be compatible with the risk tolerance of the EIB Group and any other participating risk takers.
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2.
Reference Portfolio (Securitised Portfolio)
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Securitised Portfolio | The Securitised Portfolio might include existing assets (debt finance to SMEs and other enterprises with less than 500 employees) as well as portfolios of new debt finance to SMEs.
Each Securitised Portfolio shall have sufficient homogeneity and sufficient pool diversification in order for the EIF to be able to assign a rating according to its risk assessment methodology.
Existing portfolios shall not be included in the Securitised Portfolio after the Commitment Period.
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3.
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The Additional Portfolio | Each Financial Intermediary will be contractually required to provide New Debt Finance to eligible Final Recipients (Additional Portfolio).
The breach by the Financial Intermediary of any of the requirements specified in the relevant Operational Agreement shall not affect the guarantee issued in relation to the Securitised Portfolio.
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Leverage Effect requirement for MS Contribution | The Leverage Effect is calculated as the total New Debt Finance to eligible Final Recipients divided by the MS Contribution. The minimum Leverage Effect has to be at least [X] times the total MS Contribution. |
Availability Period | The EIF and the Financial Intermediary will agree on an availability period (typically up to [3] years) during which Transactions shall be included in the Additional Portfolio. |
Eligible Final Recipients | The Final Recipients have to fulfil the eligibility requirements as per CPR Articles 37(4) and 39 as well as the specific eligibility requirements set out in ERDF and EAFRD Regulations. |
COSME Eligibility Criteria | See the COSME Regulation. |
Horizon 2020 Eligibility Criteria | See the H2020 Regulation. |
Minimum leverage requirement for COSME contribution | Given the contribution under the COSME Regulation, if applicable, a volume of New Debt Finance to eligible Final Recipients in line with the leverage requirements as set out in the COSME legal basis and Delegation Agreement has to fulfil also the COSME eligibility criteria. |
Minimum leverage requirement for Horizon 2020 contribution | Given the contribution under the H2020 Regulation, if applicable, a volume of New Debt Finance to eligible Final Recipients in line with the leverage requirements as set out in the H2020 legal basis and Delegation Agreement has to fulfil also the Horizon 2020 eligibility criteria. |
4.
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Fee | The Fee shall be established on the basis of the pricing by each of the Financial Instrument risk takers for their respective tranches (see pricing below).
The EIF shall charge to the Financial Intermediary [X] % per annum in relation to the covered part of the Securitised Portfolio.
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Pricing of the Senior Tranche | It shall be set to a predefined percentage per annum by the EIB and other potential risk takers in accordance with their pricing policy. |
Pricing of the Mezzanine Tranche | The Mezzanine Tranche shall be set to [X] % per annum by the EIF in accordance with its pricing policy.
The Middle and Lower Mezzanine Tranches shall be priced to sustain the risk in relation to the expected losses of the respective tranches. In duly justified cases, the pricing can also be further reduced to attract Financial Intermediaries.
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Pricing of the Junior Tranche | It shall be equal to zero (i.e. the Junior Tranche other than the tranche retained by the originator will be provided free of charge). |
5.
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Penalties | See Article 7. |
Reporting | See Annex 5. |
Monitoring and Audit | See Article 17. |
6.
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Transfer of benefit | The EIF shall assess the mechanism of transfer of benefit from the Financial Intermediary to the Final Recipients in the Additional Portfolio. That mechanism shall be included in the scoring system for the purpose of selecting Financial Intermediaries and it shall form part of the EIF final decision on whether or not entering into a guarantee or investment agreement and at what conditions.
The transfer of benefit shall be applied to the standard interest rate charged to the Final Recipients under New Debt Finance in the Additional Portfolio through a reduction of the credit risk premium. The mechanism of transfer of benefit shall be documented accordingly.
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Total Benefit | The Total Benefit shall take into account the benefit provided to the Financial Intermediary, in each tranche of the Securitised Portfolio.
The Total Benefit shall be calculated as the difference between the market price and the price charged by the EIF on each tranche with the same level of risk. The risk level of each tranche shall be defined by the internal rating methodology of the EIF.
In the absence of a market price, the EIF shall apply the safe-harbour premium for an equivalent risk level for guarantees laid down in the Commission notice on the application of Articles 87 and 88 of the EC Treaty to state of aid in the form of guarantees (OJ C 155, 20.6.2008, p. 25). The safe-harbour premium for the Junior tranche amounts to up to 10 % per annum.
The Total Benefit is given by the following formula:
Total Benefit = Sum of Benefits of Individual Tranches
The Benefit of Individual Tranche is calculated as follows:
Benefit of Individual Tranche = (market price of the tranche – Fee) * Total EUR amount of tranche * maturity of the tranche (weighted average life)
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7.
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State Aid Benefit | The Total State Aid Benefit is a portion of the Total Benefit, proportional to the MS Contributionf1 in the Securitised Portfolio.
The Total State Aid Benefit provided to a Financial Intermediary shall be calculated according to the following formula:
Total State Aid Benefit (in EUR) = Sum of (Benefit of Individual Tranche * the % of the MS Contribution in the tranche).
The Total State Aid Benefit shall be fully transferred by the Financial Intermediary to all the Final Recipients included in the Additional Portfolio.
The State Aid Benefit for each Final Recipient shall be calculated according to the following formula:
State Aid Benefit (interest rate subsidy in bps) = (Total State Aid Benefit/New Debt Finance in the Additional Portfolio)/Maturity of Additional Portfolio (weighted average life)
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Calculation of the GGE | The State Aid Benefit provided to Final Recipients in the Additional Portfolio, shall be considered as an interest rate subsidy within the meaning of Article 4(2) of the de minimis Regulation.
The Gross Grant Equivalent (GGE) shall be calculated according to the following formula:
GGE = nominal loan amount * maturity (weighted average life) of the loan * State Aid Benefit
The Financial Intermediary shall calculate the GGE for each and every loan in the Additional Portfolio and shall communicate it to the EIF. In all cases the GGE cannot be above the threshold set out in the de minimis Regulation.
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No additional benefit on capital relief | In application of the relevant national rules on capital requirements, the volume of New Debt Finance shall not be set at a level lower than the volume of debt finance to SMEs which could be expected to be generated by the Financial Intermediaries using the capital freed up as a result of the MS Contribution. |
State Aid Penalties | The EIF shall charge to the Financial Intermediary a State Aid Penalty in case the State Aid Benefit is not fully transferred to the final beneficiary. |