ATHENS/LONDON Greece's Alpha Bank (ACBr.AT) plans to securitise about 1.0 billion euros ($1.4 billion) of shipping loans this summer, in one of the first European asset-backed deals in this industry for years, a banker with Alpha Bank and another finance industry source said on Friday.
Europe's asset-backed market has still not recovered from the financial crisis of 2008-2009, but the European Central Bank (ECB) and Bank of England have both said they want it to revive to help provide money for credit-starved businesses and revitalize the region's economy.
The sources told Reuters that Alpha Bank, Greece's fourth-largest lender, expects to raise about 500 million euros in the transaction, which bundles together a series of individual shipping loans and which one source familiar with the deal said would be mainly arranged by U.S. bank Citi (C.N). Citi declined to comment.
"We are working on a plan to securitise about 1 billion euros worth of shipping portfolio loans, aiming to conclude the deal in the summer," the senior Alpha banker said separately, declining to be named.
"The securitization will get us funding of about 500 million euros. The bonds will have a five-year maturity and will be privately placed," the banker added.
The Alpha banker said the money raised would help the bank funnel liquidity into new loans and support the Greek economy.
"Greek banks are trying to access the international capital markets and I suspect given that interest rates are low and yield investors are looking for such products, it is a good idea from them to consider such products," an industry source said.
The deal also represents part of efforts by industry players to seek ways to raise money to plug a multi-billion dollar funding gap, caused by several European banks exiting the shipping sector or scaling back exposure in response to tougher regulations after the financial crisis.
"What this deal represents is a way for the bank to shift the loans and an alternative source of capital for the ship owners," another industry source said.
"These bonds will sell because they are backed by Citi ... It is likely that other ship owners, especially in Greece, will also look to securitise debt too."
The shipping industry has suffered one of its worst ever downturns for the past five years. Ship owners ordered large numbers of vessels between 2007 and 2009, just as the global economy sank into crisis.
Prospects have brightened in recent months as world trade picks up and the ship glut is absorbed. But recovery remains fragile and the industry faces a multi-billion dollar financing hole after many European banks, a major source of funding, cut back lending to boost capital in the wake of financial turmoil.
"There is still a need for creative sources of funding for the shipping market ... as the banks have pulled back," another industry source said.
Securitization experts in Europe argue they are being blamed for the sins of U.S. peers. European asset backed securities are traditionally more simple and transparent.
In the years leading up to 2008, when loans were transformed into bonds, many were repackaged again and again, acquiring triple A ratings despite links to U.S. sub-prime mortgages, and earning the nickname "toxic sludge".
The majority of deals in the European ABS market this year have come from assets such as auto loans, residential mortgages and credit card deals, but the volume of issuance remains relatively low.
(Additional reporting by Alex Chambers and Anil Mayre; Editing by Jane Merriman and David Holmes)