PGGM and Alecta share risk in 8 billion euro loan portfolio BNP Paribas

February 2, 2022

PGGM (on behalf of PFZW) and Alecta have entered into a Credit Risk Sharing (CRS) agreement with BNP Paribas, referencing an 8 billion euro loan portfolio. For the investors and the bank it’s the first CRS transaction that meets the quality criteria set by the EU for Simple, Transparent and Standardised transactions (STS). This reflects Alecta’s and PGGM’s drive to ensure CRS investments adhere to high standards in terms of how these type of transactions are structured.

The transaction, in which Alecta and PFZW are cornerstone investors, is the most recent issuance from BNP Paribas’ successful Resonance programme, through which the bank on an on-going basis enters into credit risk sharing transactions and which supports the capitalisation of its lending activities with core French and international corporate clients.

PGGM and Alecta have a longstanding relationship with BNP Paribas and also invested in previous credit risk sharing transactions. In this most recent issuance, they share risk in a 8 billion euro portfolio of loans to a wide variety of corporates based in Europe, the United States and across Asia-Pacific.

The fact that this most recent risk sharing is a STS qualifying transaction is an important milestone reached, after many years of advocacy by PGGM on extending the use of the STS framework to credit risk sharing transactions.

Angélique Pieterse, Senior Director at PGGM: “Realising our first STS qualifying risk sharing transaction with BNP Paribas feels extra special, considering the two institutions started the very first dialogue on STS for synthetic securitisation with the EBA together back in 2015. Now, the circle is closed by entering into this transaction, and we hope there will be many more to follow.”

The STS qualification is a guidance rather than a legal requirement by the EU, reflecting a standard for how credit risk sharing transactions should ideally be structured. When granted it means the bank is allowed to reduce the risk capital held against the very remote risks that stay with the bank once the transaction is in place. This leads to an improved cost efficiency of the transaction.

Alecta and PGGM both strongly support the implementation of STS criteria in CRS transactions. They believe key features of any healthy and sustainable investment class are that it is relatively easy to understand and manage, which is closely aligned with the objectives of STS. The CRS transactions that both institutions have invested in to date therefore broadly follow the spirit of STS. Achieving the STS qualification for this most recent issuance visualises the quality of the Resonance programme, which only needed small adjustments to ensure full adherence to all STS criteria.

PGGM has been growing a credit risk sharing portfolio for PFZW (the 277 billion euro pension fund for Dutch healthcare workers) since late 2006. It is one of the most experienced and largest investors in this field, with currently around 5 billion euro invested.

PFZW has a dedicated allocation to CRS investments, which it considered an attractive asset class that provides access to diversified credit risks, ranging from trade finance, loans to SMEs and large corporate to project finance, in either specific regions or on a global scale. It enables PFZW to support the real economy through capitalizing banks in a tailored part of their business, and in that way access risks in parts of the economy which would not be accessible through other public investments.

As part of their ambition to expand into private market assets, Alecta decided to build a sizeable portfolio of credit risk sharing transactions by entering into a co-investment agreement with PGGM in April 2020.

Tony Persson, Alecta’s head of Fixed Income and Strategy, shares: “We welcome this addition to our growing portfolio of credit risk sharing investments, and are very happy to further strengthen our existing relationship with BNP Paribas. For Alecta the transaction offers a valuable source of credit diversification and opportunity to benefit from BNP Paribas specific client base, which in the end will be positive for our 2.6 million customers. We look forward to further grow our portfolio and see plenty of scope getting exposure to many different loan books from SME lending to project finance and thereby providing additional capacity to lend to the real economy.”