PGGM takes on Citi's emerging market credit risk

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NETHERLANDS/UK - Major Dutch pension fund PGGM said today it has agreed to take on part of the risk of financial group Citi's portfolio of emerging market credit exposures.

The transaction, called Terra I, entails a €2.5bn highly-diversified portfolio of over 800 corporate credit facilities across 32 countries, PGGM and Citi announced today in a joint statement.

Calling it "one of the most granular emerging market collateralised loan obligations ever done," PGGM said the loans are sourced from Citi's balance sheet and have gone through the bank's credit approval process.

Through the transaction, the Dutch fund sells protection to Citi on the equity and junior mezzanine - a more risky hybrid of debt and equity financing - part of the capital structure for a period of five years.

"The extremely granular portfolio Citi offered, together with the willingness to share (instead of a full transfer) the risk, were key decision-making factors for us," commented Raymond van Wersch, PGGM's senior portfolio manager for structured credit.

PGGM, Holland's second-largest pension fund with assets of €86bn, said it had been looking for such a transaction to obtain access to assets which don't normally trade in the market.

"This transaction serves as an example of the role Dutch pension funds can play in creating innovative investment solutions, especially in today's market presenting many interesting opportunities," said Mascha Canio, head of infrastructure, private equity and structures credit at the Zeist-based fund.

IPE learned earlier this year it will double its concentrated risk investments in 2007.

Jelle Beenen, head of the pioneering portfolio of strategies team at the €86bn Dutch pension fund, told IPE in August: "The possibilities to add part of somebody else's concentrated risk exposures, particularly of financial institutions, in our diversified portfolio will grow in the coming year.

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