Flagship: Credit Suisse sells yachts to bond investors



Unless you also subscribe to Structured Credit Investor (no relation to us), you may have missed an innovative securitisation of yacht loans.

Credit Suisse Private Bank quietly closed a $2bn synthetic deal involving superyacht loans in December. The securitisation transfers risk from the private bank’s business jet and superyacht portfolios.

This is thought to be the first time that yacht or corporate jet debt have been securitised by a private bank. The Swiss bank is one of the most active private banks in superyacht finance.

By removing the risk of a default, the bank no longer needs to allocate regulatory capital (typically cash invested in government bonds) against the possibility of loans going bad. By freeing up this regulatory capital, the bank can keep lending to new clients.

Because the transaction is synthetic, Credit Suisse did not sell the loans and leases, just the default risk. There were more than 100 borrowers in the underlying portfolio. As with other securitisations, the names of these borrowers or the yachts were not shared with investors.

If a significant number of clients default, investors lose their right to interest or principal payments. Synthetic securitisations are typically tranched or split into different levels to offer investors different risks and rewards. Investors getting the most interest are the first to lose payments if there are defaults.

This transaction had a $80m first loss tranche and a $10m second loss tranche. These pay much higher interest than the interest on the underlying portfolio – the first loss tranche offers interest of 11.5% over the Secured Overnight Financing Rate (SOFR) – but are the first to stop paying if there are any losses and therefore carry most of the economic risk. This interest equates to less than 50bps (0.5%) on the underlying portfolio which shows the high quality of the underlying loans.

This transaction is an important one for the superyacht market. Even private transactions like this help increase investor confidence in new asset classes. Credit Suisse has made future capital market deals from yards or lenders that little bit easier.