NETHERLANDS - The €80bn Dutch healthcare and social work pension fund PGGM has entered a partnership with ABN AMRO in which both share the risk related to the bank's loan portfolio.
On Friday "a first transaction was executed under the partnership," when ABN Amro sold part of the credit risk on its loan book to PGGM, using a so-called collateralised loan obligation (CLO) structure, the two said in a statement today. Financial terms were not disclosed.
Piet Roelandt, director of portfolio management at Zeist-based PGGM, explained that it is an "effective way of investing in a loan market which thus far has been difficult to access through the public markets in a size that is meaningful for PGGM."
The fund, which sees the deal as a way of diversifying its overall portfolio, participates in the equity and mezzanine tranches of the CLO, which is linked to a loan portfolio with a total capital sum of €15.5bn - the transaction means that ABN Amro has reduced its capital costs from 10.5% to 9.5%.
PGGM did not want to disclose how much it has invested in the deal, but Roelandt said that assets have been taken from partly from fixed income and partly from shares.
The transaction is a private and "tailor-made" version of the recent public Amstel 2006 asset securitisation "to match PGGM's requirements", ABN AMRO said.
Both sides benefit from the move as the bank reduces the risks associated with lending by transferring it to PGGM which will get a return for this, as the CLO allows a bank to reduce its regulatory capital requirements by selling portions of the commercial loan portfolios to international markets.
ABN Amro's chief financial officer Hugh Scott-Barrett said the bank expects "to conduct a number of transactions" with the pension fund.
According to PGGM's Mascha Canio, who has been leading the agreement with ABN Amro, plans for further transactions with the bank will be made next year.