Repack Bond

[Spencer Prather]

Intheir most basic format, SPV repacks involve an SPV purchasing an underlying asset, and re-profiling the cash flows by entering into a derivative transaction with a swap counter-party. The combined transaction is financed by the issuance of a note, which is then sold to an investor. Although there are parallels between SPV repacks and securitisations, the former are widely considered to be more cost-effective and less administratively complex for small portfolios. Fuelled by their operational benefits and degree of flexibility, investor appetite for repacks is gaining momentum.

HSBC provided an end-to-end solution, with Markets & Securities Services structuring the notes, originated from the GTS business, while Issuer Services provided agency services to facilitate the ongoing operational and administrative requirements.

Symbiotics Investments has arranged a green bond repack, which permitted Amundi Asset Management, a subsidiary of the Credit Agricole group, to take a USD 50,000,000 exposure to a blue bond issued by BBVA Colombia, the largest foreign investor in the Colombian financial system.

The issuance of the blue bond gives BBVA Colombia a fresh source of funding to grow their investments in water and marine-related projects. The projects that will be financed include sustainable water and wastewater management such as investments in new drinking water treatment; pollution prevention and control, such as the use of recycled plastics for manufacturing in a circular economy approach; and renewable energy, with a specific focus on marine renewables.

With this green bond Symbiotics Investments offers investors a participation in a blue bond, and exposure to marine and water related investments in Colombia, which would not be accessible to them directly., said Philipp Jung, Director Symbiotics UK & Head of Transaction Legal & Structuring.

About Symbiotics Investments

Symbiotics Investments SA is the leading market access platform for impact investing, dedicated to private markets in emerging and frontier economies. The group offers investment, asset management and capacity building services. Since 2005, Symbiotics Investments (and its related parties) has originated over 7,700 investments representing more than USD 9.6 billion for 579 companies in 95 countries. symbioticsgroup.com

About BBVA Colombia

BBVA in Colombia is part of the BBVA Group, a global financial group founded in 1857, present in more than 25 countries, with a leading position in the Spanish market, the largest financial institution in Mexico and leading franchises in South America and Turkey. In Colombia, it is the largest foreign investor in the Colombian financial system and the fifth in the country. bbva.com.co

Despite yields on regular government and corporate bonds being elevated, Nomura has seen an increase in demand for more complex structures on the SPIRE platform in the first quarter compared to the same period a year ago.

As an example, euro denominated investors, buying a foreign currency asset themselves would typically have to overlay a cross-currency swap to convert the cashflows back into euros. While cross-currency swaps are typically inexpensive and liquid to enter and exit, they are derivatives that sit on the balance sheet leading to volatility and operational and collateral management complexities for investors explains Ben Hammond, Managing Director in Credit Structuring at Nomura in London.

Another important consideration for insurers is the issue of capital charges under the pan-European insurance regime Solvency II. Most European insurers need high yielding zero SCR (Solvency Credit Risk) assets, which have a 0% capital charge under Solvency II rules. These assets are typically bonds issued by EU sovereign governments, local regions, supranationals, and AA/AAA rated non-EU sovereigns. Other examples include UK gilts and gilt linkers denominated in sterling.

Cermeno says that with developed market interest rates expected to fall later this year, some insurance clients are weighing up inverse floaters, which can achieve higher yield as central banks look to cut interest rates.

This content has been prepared by Nomura solely for information purposes, and is not an offer to buy or sell or provide (as the case may be) or a solicitation of an offer to buy or sell or enter into any agreement with respect to any security, product, service (including but not limited to investment advisory services) or investment. The opinions expressed in the content do not constitute investment advice and independent advice should be sought where appropriate.The content contains general information only and does not take into account the individual objectives, financial situation or needs of a person. All information, opinions and estimates expressed in the content are current as of the date of publication, are subject to change without notice, and may become outdated over time. To the extent that any materials or investment services on or referred to in the content are construed to be regulated activities under the local laws of any jurisdiction and are made available to persons resident in such jurisdiction, they shall only be made available through appropriately licenced Nomura entities in that jurisdiction or otherwise through Nomura entities that are exempt from applicable licensing and regulatory requirements in that jurisdiction. For more information please go to

Special purpose vehicles (SPVs) are commonly employed as a structuring tool in many cross-border and structured finance transactions, and repackaging transactions are no exception. The Cayman Islands has a long history of acting as a structuring jurisdiction for repackaging SPVs. The stable political climate, flexible corporate regime and well established, creditor friendly legal system within the Cayman Islands, coupled with the availability of tried and tested bankruptcy remote SPV structures, the option of using segregated portfolio companies and the possibility of listing notes on the Cayman Islands Stock Exchange, make it an ideal choice of jurisdiction for establishing a repackaging vehicle.

Because Repack structures are already well established, they benefit from documentation that is broadly standardised across the market, meaning that individual programs can be set up quickly and efficiently. Once a Repack program is in place, it is very straightforward to undertake individual issuances, as the documentation will be in a pre-agreed form and will be subject to minimal negotiation. This makes it possible to issue multiple series concurrently and for the transactions to be originated, documented, booked and executed within a relatively short time span and with minimal negotiation of the documentation required.

In recent years, the market has moved towards even more standardised documentation, with a number of arranging banks choosing to adopt modular structures that allow greater flexibility in how the Repack structure can be used, without the need for extensively negotiated bespoke documentation.

Repack structures can be used for one-off transactions, but more typically they are set up as note issuance programs, focusing on acquiring collateral fitting a certain profile. This allows the Issuer to be utilized on an ongoing basis for multiple note issuance transactions using a standardized set of documents. Where a program structure is put in place, the documentation will be streamlined, with an initial offering document and set of program level documents containing the general terms of the program being put in place on launch, and then supplemental documentation being put in place for each new trade under the program, incorporating the terms of the overarching program level documents, together with any amendments or specific terms required for a particular series.

In order for a program structure to operate effectively it must be possible for the collateral underpinning each note issuance, as well as the obligations of the Issuer in respect of each series of notes, to be effectively separated from the collateral and note obligations of each other series issuance. Typically this will be achieved by way of a contractual arrangement whereby the investors in each series agree that they will only have recourse to the Issuer for obligations arising in connection with, and against the collateral relating to, that specific series of notes. Provided that such contractual segregation is possible and recognized as a matter of the governing law of the program, then a Cayman Islands court would generally uphold any such contractual arrangement between the parties.

In order to achieve bankruptcy remoteness, the Issuer will need to be structured in such a way that it is legally independent from both the seller/issuer of the underlying collateral and the investors in the notes, and that none of the other transaction parties is able to exercise any direct control over the Issuer. Cayman Islands bankruptcy remote Issuers will typically utilise an orphan trust structure.

This means that legal title to the shares of the Issuer will be held by a corporate trust provider (the Share Trustee) that is independent from both the seller/collateral issuer and the investor, and also from the other transaction parties. A nominal number of shares will be issued by the Issuer to the Share Trustee at par value, and beneficial title to the shares will be held by the Share Trustee on the terms of a charitable trust established pursuant to a declaration of trust (the Declaration of Trust) for the benefit of one or more qualifying charities. The Share Trustee will only be entitled to act in relation to the shares of the Issuer on and subject to the terms of the Declaration of Trust. In order to further ensure independence of the Issuer, a majority (and commonly all) of the directors of the Issuer will be professional directors provided by a corporate administrator in the Cayman Islands.

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