Issuing Bank

In which types of transactions does an Issuing Bank operate?

An Issuing Bank plays a central role in complex financing transactions that involve the issuance of debt securities by aSpecial Purpose Vehicle (SPV) created specifically for the operation.

This approach is widely used in:

  • securitization transactions (credit portfolios, receivables, financial assets);
  • project finance (renewable energy assets, infrastructure, industrial facilities).

The Issuing Bank structures, coordinates and manages these transactions to deliver an efficient and optimized financing solution for its clients.


What is the role of the Issuing Bank?

The Issuing Bank supports the transaction from inception to maturity:

1. Structuring the transaction

The Issuing Bank:

  • creates the SPV as an independent legal entity;
  • selects the assets transferred to the SPV (loan portfolio, wind farm, infrastructure project, etc.);
  • designs the financing structure, including the types of instruments to be issued, the number and hierarchy of tranches and the repayment waterfall and risk allocation.

2. Placement of the securities

It is responsible for:

  • defining the target investor base;
  • organizing the roadshow to present the transaction;
  • collecting investor orders ;
  • allocating the securities issued by the SPV to investors.

3. Operational management over time

The Issuing Bank may also oversee:

  • the management (often through a mandate) of the cash flows generated by the assets held in the SPV; 
  • the debt servicing of the SPV: payment of interest and repayment of bond tranches;
  • the compliance, transparency, and proper execution of the commitments made by the SPV.

 

What are the benefits for the client?

Issuing Bank transactions provide several strategic advantages:

1. Risk transfer: the underlying credit or project risk is transferred from the client to the investors.

2. Balance sheet optimization:

  • capital relief in the context of securitization for banks;
  • reduction of balance sheet size for corporate sponsors in project finance.

3. Lower cost of financing: access to diversified investors and tranching of risk often results in more competitive financing costs.


Example

A bank holds a EUR 1 billion portfolio of mortgage loans and wishes to:

  • reduce its risk exposure;
  • free up regulatory capital;
  • optimise its balance sheet.

Creation of the SPV and issuance of securities

1.    The bank creates an SPV, legally independent from the Issuing Bank;

2.    The SPV purchases the loan portfolio from the bank;

3.    To finance this purchase, the SPV issues asset backed securities divided into several tranches with different risk/return profiles:

  • senior tranche (AAA): priority repayment, low risk, low yield; typically placed with insurers or money market funds;
  • mezzanine tranche (BBB): higher yield, moderate risk; placed with investment funds;
  • junior tranche (BB or unrated): highest risk, highest yield, often partly retained by the bank or sold to specialized funds.

The SPV collects cash flows from the underlying loans (interest and principal), manages credit risk, and services the debt by paying interest and repaying principal on the issued securities.


Examples of transactions where Societe Generale acted as Issuing Bank