| Structuring for the credit risk transfer market |
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By: Keith Dignam, Ned Bowers, Keith Dignam, Ned Bowers
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| Established last June, Structured Credit plc has gone from strength to strength since its initial $208 million fund-raising, and has already done 33 transactions, worth $3.5 billion. Ned Bowers and Keith Dignam talk to Fiona Reddan about developments to date, plans for future growth, and why they are intent on further developing Ireland as a location for credit risk transfer. |
Located in a gracious Georgian building on Fitzwilliam Square, Structured Credit is the type of cutting edge financial services operation that you might expect to see in New York or London.
Operating primarily in the synthetic segment of the credit risk transfer market, the firm assumes high quality portfolios of credit risk from leading financial institutions. | | Pictured at the launch of Structured Credit plc earlier this year are (l-r) Keith Dignam, cheif financial officer, Geoff Kalish, chairman and Ned Bowers, managing director. |
Why Dublin then?
At first the reasons may not be obvious - managing director Ned Bowers hails from the US, and was based in New York until early 2004, working for financial guarantee company Radian. Radian originates and underwrites well-structured credit transactions in the rapidly growing global structured products market, and its global structured products group writes financial guaranty insurance in the United Kingdom and in other countries in the European Union.
While working there Bowers saw an opportunity for doing more structured credit business. However as is often the case, Bowers colleagues at Radian didn't concur, so he bit the bullet and left to set up on his own, bringing with him some key colleagues from Radian. In total, six former employees of Radian now work for Structured Credit.
After doing his figures, Bowers estimated that he would need between $150-$250 million in capital to launch the business. By June 2006, $208 million had been raised, a figure Bowers was more than happy with. The money was raised from a high calibre list of shareholders including Aquiline Capital Partners; Caisse de d?p?t et placement du Qu?bec; Pacific Corporate Group; Calyon and Triad Guaranty Inc. Geoff Kalish, a senior principal in Aquiline Capital Partners, took on the role of chairman of Structured Credit.
Around this time Bowers was also looking to recruit some senior staff on the ground in Dublin, and Kalish recommended someone who he had worked with previously, Keith Dignam. Working for Bank of Ireland in the 1990s Dignam had been responsible for leading many of the bank's M&A activities during this time, including the sale of First New Hampshire Bank, and the disposal of its shareholding in Citizens Financial Group. He later established an independent consulting firm which provided advisory services to major Irish and international financial institutions, advising on strategic, funding and operational issues.
Dignam relates the recruitment process as follows, 'I was in a taxi going to JFK airport when I got the call from Geoff. I had previously worked with Geoff when he was in Salomons and the firm advised Bank of Ireland on the sale of its US interests, but at the time I was working for myself'. However, by the time Dignam got to JFK the Structured Credit story had been sold to him.
But back to Dublin. Bowers says that the firm was looking for a European location, as the structured credit business tends to be more 'structured/ bespoke' on this side of the Atlantic. Another important element of the decision was the fact that he was sure he wanted his new operation to be a bank.
'We could have gone down the Cayman special purpose entity route, but I decided right off that I wanted it to be a wholesale bank. Our clients are banks, and because banks are liable to regulatory oversight and stringent capital requirements, banks are more comfortable dealing with banks'.
So, he was looking for a European location, where it would be relatively easy to set up a wholesale bank. While London was an option, it didn't have what Ireland did - a 12.5 per cent corporation tax rate.
Today the firm has a Dublin headquarters employing 10-11 people with another two offices worldwide - one in New York employing six people, and the other in London employing four.
'The London and New York offices are advisory companies, with no assets, acting as originators. They have no underwriting authority. The risk committee, board and supervisory committee are all based in Dublin, along with myself, Keith and other key personnel such as the head of credit and head of legal and compliance,' says Bowers.
He expects that once the firm is fully up and running, it will be structuring 50-60 transactions a year.
A typical transaction would have 100-150 obligors from investment grade companies, with a pool of $10-15 million. Bowers hopes that Structured Credit will get a AA rating from Moody's by Q2/Q3 of this year, and will then write AAA deals. Since last June, the firm has done 33 transactions, worth $3.5 billion.
Regarding asset type, the majority of Structured Credit's deals are corporate deals, although they will also look at commercial mortgage backed securitisations and residential mortgage backed securitisatons. As for geographical origination, 54 per cent of deals done to date came out of the US and Europe.
At the moment, all the deals Structured Credit have done are synthetic, but once the firm gets its banking licence, which it has applied for, it will accept deposits, and use these to pay for deals.
'Within three years, we will have $35 billion of assets, in one of the most diversified credit portfolio of any bank,' says Bowers. Possible future plans for the young firm involve the creation of a structured credit fund, as well as potential M&A activity with another firm, or embarking on a joint venture with another wholesale bank.
Although mainly focused on the Irish market, Bowers also hopes to leverage on Dignam's contacts in the Irish market, and the firm is currently in discussions with an Irish bank about doing a private deal.
Apart from being ambitious about growth prospects for his own company, Bowers is also very intent on further developing Ireland as a location for credit risk transfer.
He is keenly aware of Ireland's reputation as a 'centre for excellence' for securitisation, and says that his firm is benefiting from the flow of people travelling to Dublin who drop by their offices. Moreover, he hopes that Dublin can develop a similar reputation in the credit risk transfer field. |
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