January 2024
TRAFIN 2023-1: Deutsche Bank closes fifth trade finance securitisation
Deutsche Bank has closed the US$3.5bn issuance of TRAFIN 2023-1, the fifth iteration of its trade finance significant risk transfer synthetic securitisation
To structure the transaction, Deutsche Bank divided an underlying and revolving portfolio of trade finance assets into different risk segments and originated, structured, arranged and placed a US$227.5m first loss tranche with a syndicate of institutional investors from Europe and the Americas. By taking on the risk of absorbing initial losses, the investors provide credit protection for the portfolio.
The synthetic securitisation transaction follows the maturity of TRAFIN 2018-1 – the fourth iteration of this trade finance securitisation – in November 2023. It has a 3.5-year scheduled maturity, and the weighted average life of the initial pool is around 90 days. As these short-term assets mature and the pool amortises, new trade finance assets will be selected to replenish the portfolio on a monthly basis based on pre-set conditions.
“The continuation of this landmark securitisation programme – now in its fifth iteration – allows our trade finance business to originate a greater volume of transactions in the space, which, in turn, is helping us to power the real economy and develop local communities,” explained Oliver Resovac, Global Co-Head of Trade Finance & Lending at Deutsche Bank.
Trade finance as an asset class
Synthetic securitisation – as used in this transaction – involves the pooling and risk-based tranching of assets that will remain on the bank’s balance sheet, while credit risk is transferred to investors through the issuance of a credit-linked note (CLN) referencing the specific tranches. Using this structure has balance sheet advantages – and allows the bank to hedge and obtain capital relief, under the EU’s Capital Requirements Regulation (CRR) for securitisations.
These structures have become more popular in recent years, as trade finance as an asset class continues to gain traction among institutional investors. By investing in securitised tranches referencing traditional short-term trade finance products – including letters of credit and accounts receivables – investors can gain exposure to a global portfolio diversified across products, industries and client types. The asset class is also generally characterised by low default rates, self-liquidation, and short tenors – making it a stable, attractive and relatively scarce asset class for capital market investors.
"We are also expanding into other forms of capital market investment products for trade finance"
Deutsche Bank has been at the forefront of opening trade finance assets to capital markets and remains one of a small number of issuers in the synthetic securitisation space. The latest transaction continues to break new ground. TRAFIN 2023-1 represents one of only a few synthetic securitisations issued by Deutsche Bank that have been verified as compliant under the European Union’s “Simple, Transparent & Standardised” standard – enabling higher overall capital relief and tighter pricing for the bank.1
“On the back of strong investor demand, we are also expanding into other forms of capital market investment products for trade finance, including funded risk sharing arrangements, traditional working capital, and documentary trade facilities, among others,” added Deutsche Bank’s Resovac. “Going forward, we believe these products will play an increasingly important role in providing additional sources of capital.”