BPI Family Bank to pioneer auto loan securitization
Screengrab from https://www.bpiloans.com/
MANILA, Philippines – Leading thrift bank BPI Family Bank plans to pioneer auto loan securitization in the country by unloading part of its auto loan portfolio into a special purpose trust (SPT) which will in turn sell P5 billion in retail bonds backed by these receivables.
BPI Family, which would sell some auto loans to the newly created BPIFSB Auto Dream Bonds Special Purpose Trust, has been planning to launch this asset-backed securities (ABS) offering by late September or October, bank president Teodoro Limcaoco said in a text message on Tuesday night.
The exact timing would depend on approvals from the Bangko Sentral ng Pilipinas and the Securities and Exchange Commission, he said.
BPIFSB has filed a registration statement with the Securities and Exchange Commission to issue such ABS – the first registered transaction of its kind as well as the first retail issuance and securitization of auto loans under the Securitization Act of 2004. Previous deals on securitization – which refers to the pooling of receivables and turning them into securities – involved housing assets mostly ceded by government-owned entities.
The securitization transaction involves the issuance by the SPT of up to P5 billion worth of bonds backed by an asset pool of auto loans amounting up to P4.8 billion.
“We are pleased to be doing this innovative capital markets transaction. With this, we are able to more efficiently use our balance sheet amidst this environment for strong loan origination. Furthermore, we are able to deliver products to our investing clients that enable them to enhance yield in exchange for well-collateralized risk,” Limcaoco said.
Under the framework, BPI Family will sell without recourse and under a trust arrangement a portfolio of auto loans to the SPT, which in turn will issue bonds to investors to fund its purchase of the auto loans. BPI Family, for its part, will continue to service the underlying loans.
Standard Chartered Bank has been mandated to be the issue manager for the proposed bond issuance. BPI Capital Corp., together with Standard Chartered Bank, will be the joint lead underwriters and bookrunners. The Land Bank of the Philippines is the SPT trustee while the Development Bank of the Philippines will be the bond trustee.
BPI Family, which has about P37 billion in auto loans equivalent to about a quarter of its total loan book, plans to do more securitization deals with auto loans rather than housing loans as underlying assets.
“We are using this first as a template for further plans to securitize more auto than housing,” Limcaoco said, adding that it has been easier to structure auto loan-backed securities.
“We’re also doing this also to provide our investors with good one- and three-year investment outlet – (that’s) something missing from market today,” Limcaoco said.
Asked to elaborate why housing securitization has turned out to be harder to structure than auto securitization, Limcaoco said that because housing loan rates were typically not fixed for the full term, it has been impossible to set fixed rate for the bonds. At the same time, he said that because there has been no index for housing loan rates, there has been no index as well for the bonds.
Local credit watchdog Philippine Rating Services Corp. has assigned a “conditional” issue credit rating of “PRS Aaa” to the bonds of the issuer.
Obligations rated PRS Aaa – the highest rating assigned by Philratings – are defined as having “the highest quality with minimal credit risk.” A “conditional” PRS Aa was also assigned to the junior (subordinated) bonds of this securitization. The ratings are considered “conditional” until the executed documentation for the transaction had been submitted for review.
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