{ "url": "https://openlegislation.uk/eu-decision-2014-660/annex/division-16/division-SECURITISATION/division-1", "json_url": "https://openlegislation.uk/eu-decision-2014-660/annex/division-16/division-SECURITISATION/division-1.json", "legislation": "eudn/2014/660", "legislation_title": "Commission Implementing Decision of 11 September 2014 on the model of funding agreement for the contribution of the European Regional Development Fund and the European Agricultural Fund for Rural Development to joint uncapped guarantee and securitisation financial instruments in favour of small and medium-sized enterprises (2014/660/EU)", "legislation_url": "https://openlegislation.uk/eu-decision-2014-660", "path": "annex/division/16/division/SECURITISATION/division/1", "kind": "division", "number": null, "heading": "SME INITIATIVE SECURITISATION INSTRUMENT", "text": "This instrument foresees the utilisation of securitisation transactions backed by SME loans, leases or guarantees where EU resources (COSME and/or Horizon 2020), ERDF/EAFRD, together with resources from the EIB Group and potentially alongside national promotional banks, national guarantee schemes and other institutional investors, would subscribe or guarantee certain amounts at different levels of risks.\nUnder a securitisation instrument, a portfolio of SME eligible financing instruments is used as collateral for tradable securities (tranches), diversified by level of risk.\nUnfunded risk transfer arrangements (synthetic securitisation) would also be possible, allowing for the transfer of credit risk to third parties without actually removing the portfolio of assets from the balance sheet of the bank and therefore providing the opportunity for the originating bank to obtain regulatory capital relief. Such operations would have to take into consideration the relevant country's regulatory requirements.\nThe securitisation instrument will guarantee a significant part of the underlying eligible debt financing portfolio upon an undertaking by the relevant Financial Intermediary to create an additional portfolio also by using resources mobilised as a result of the securitisation transaction for new SME financing.\nUnder the SME Initiative Securitisation Instrument, the EIF and the EIB (potentially alongside national promotional banks, national guarantee schemes and other institutional investors) would subscribe or guarantee certain tranches up to agreed maximum amounts. The originating financial institutions shall retain a material interest in the transaction, such as an adequate portion (minimum 50 %) of the junior tranche and an adequate exposure to each tranche placed with investors, or similar arrangements, in order to ensure the necessary alignment of interest ‘skin in the game’) and to comply with the risk retention requirement set out in Directive 2013/36/EU and Regulation (EU) No 575/2013.\nThe rating of the senior and the mezzanine tranches shall be compatible with the risk tolerance of the EIB Group and potentially national promotional banks, national guarantee schemes and third party institutional investors who may also invest in the senior tranches of such securitisations thus increasing the leverage of committed budgetary resources.\nJunior and mezzanine tranches not retained by the originator are subscribed by a combination of ERDF/EAFRD, COSME/Horizon 2020 and EIF's own resources.\nManaging Authorities who are willing to participate in the guarantee scheme (via the EIF, but at the risk of the ESI Funds contribution) guarantee/invest up to 50 % of the Junior tranche.\nThe origination, due diligence, documentation and servicing of the securitised portfolio, made of eligible SME loans, leases or guarantees to SME and companies with less than 500 employees, shall be performed by the Financial Intermediaries in accordance with their usual origination and servicing procedures. The Financial Intermediaries typically retain the direct client credit relationship with each SME. The Financial Intermediaries will provide information about the securitised portfolio as well as the Additional Portfolio (newly originated SME financing) on a quarterly basis to the EIB and EIF respectively until termination of the securitisation transaction.\nIndicative Terms of the Securitisation\nOnly the MS Contribution to the EIF for the securitised portfolio is relevant for state aid considerations. Resources from the Commission and EIB and EIF own resources do not constitute state aid\n1.\nGeneral Terms\nScope of the Financial Instrument\nBy 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).\nThe 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).\nThe 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.\nTransaction structure\nEither cash (‘true sale’) or synthetic (‘unfunded’) securitisations are allowed.\nA 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.\nIn 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.\nThe EIF shall tranche the Securitised Portfolio according to the risk of the underlying transactions.\nThe 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.\nThe 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.\nThe 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.\nThe Lower Mezzanine and the Middle Mezzanine Tranches shall be up to [predetermined percentages of the Securitised Portfolio.\nThe 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.\nThe 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.\n2.\nReference Portfolio (Securitised Portfolio)\nSecuritised Portfolio\nThe 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.\nEach 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.\nExisting portfolios shall not be included in the Securitised Portfolio after the Commitment Period.\n3.\nAdditional Portfolio\nThe Additional Portfolio\nEach Financial Intermediary will be contractually required to provide New Debt Finance to eligible Final Recipients (Additional Portfolio).\nThe 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.\nLeverage Effect requirement for MS Contribution\nThe 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.\nAvailability Period\nThe 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.\nEligible Final Recipients\nThe 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.\nCOSME Eligibility Criteria\nSee the COSME Regulation.\nHorizon 2020 Eligibility Criteria\nSee the H2020 Regulation.\nMinimum leverage requirement for COSME contribution\nGiven 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.\nMinimum leverage requirement for Horizon 2020 contribution\nGiven 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.\n4.\nPricing\nFee\nThe 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).\nThe EIF shall charge to the Financial Intermediary [X] % per annum in relation to the covered part of the Securitised Portfolio.\nPricing of the Senior Tranche\nIt shall be set to a predefined percentage per annum by the EIB and other potential risk takers in accordance with their pricing policy.\nPricing of the Mezzanine Tranche\nThe Mezzanine Tranche shall be set to [X] % per annum by the EIF in accordance with its pricing policy.\nThe 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.\nPricing of the Junior Tranche\nIt shall be equal to zero (i.e. the Junior Tranche other than the tranche retained by the originator will be provided free of charge).\n5.\nMiscellaneous\nPenalties\nSee Article 7.\nReporting\nSee Annex 5.\nMonitoring and Audit\nSee Article 17.\n6.\nTransfer of benefit\nTransfer of benefit\nThe 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.\nThe 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.\nTotal Benefit\nThe Total Benefit shall take into account the benefit provided to the Financial Intermediary, in each tranche of the Securitised Portfolio.\nThe 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.\nIn 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.\nThe Total Benefit is given by the following formula:\nTotal Benefit = Sum of Benefits of Individual Tranches\nThe Benefit of Individual Tranche is calculated as follows:\nBenefit of Individual Tranche = (market price of the tranche – Fee) * Total EUR amount of tranche * maturity of the tranche (weighted average life)\n7.\nState Aid\nState Aid Benefit\nThe Total State Aid Benefit is a portion of the Total Benefit, proportional to the MS Contribution in the Securitised Portfolio.\nThe Total State Aid Benefit provided to a Financial Intermediary shall be calculated according to the following formula:\nTotal State Aid Benefit (in EUR) = Sum of (Benefit of Individual Tranche * the % of the MS Contribution in the tranche).\nThe Total State Aid Benefit shall be fully transferred by the Financial Intermediary to all the Final Recipients included in the Additional Portfolio.\nThe State Aid Benefit for each Final Recipient shall be calculated according to the following formula:\nState 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)\nCalculation of the GGE\nThe 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.\nThe Gross Grant Equivalent (GGE) shall be calculated according to the following formula:\nGGE = nominal loan amount * maturity (weighted average life) of the loan * State Aid Benefit\nThe 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.\nNo additional benefit on capital relief\nIn 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.\nState Aid Penalties\nThe 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.", "extent": "E+W+S+N.I.", "status": null, "version": "current", "annotations": [ { "type": "F", "label": "F1", "text": "Decision revoked in part (31.12.2020) by The European Structural and Investment Funds Common Provisions Rules etc. (Amendment etc.) (EU Exit) Regulations 2019 (S.I. 2019/783), reg. 10(c); 2020 c. 1, Sch. 5 para. 1(1)" }, { "type": "footnote", "label": "f1", "text": "Only the MS Contribution to the EIF for the securitised portfolio is relevant for state aid considerations. Resources from the Commission and EIB and EIF own resources do not constitute state aid" } ], "outstanding_effects": [], "provenance": { "source": "legislation.gov.uk", "source_url": "https://www.legislation.gov.uk/eudn/2014/660/annex/division/16/division/SECURITISATION/division/1", "retrieved_at": "2026-11-01T15:14:38.904122+00:00" }, "licence": "Open Government Licence v3.0", "licence_url": "https://www.nationalarchives.gov.uk/doc/open-government-licence/version/3/", "attribution": "Contains public sector information licensed under the Open Government Licence v3.0. Source: legislation.gov.uk, The National Archives." }