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FMO has sold $67.4 million of its sub-debt portfolio to three investment vehicles managed by Swiss-based asset manager responsAbility Investments AG. The sub-debt comprises transactions with nine financial institutions that predominantly serve SMEs in emerging markets.
Through a participation agreement signed in July 2016, the three investment vehicles obtain rights to cash flow in nine existing sub-debt deals with FMO. While FMO remains lender of record and continues to manage the portfolio, the three funds take over the underlying risks on 35% to 60% of FMO’s outstanding debt.
The deal is a reaction to regulatory changes under Basel III which make it more expensive to keep sub-debt deals on FMO’s own books – in short, FMO wanted to offset risk and create a precedent for a significant secondary transaction.
According to Ruhi Cosgun, manager of financial institutions at FMO: “This transaction demonstrates FMO’s capacity to source good deals that can be syndicated out via a secondary sale to other institutions. In addition, it contributes significantly to our target of catalyzing investments from commercial parties in our focus markets.”