The ‘capital-marketisation’ of export finance


Financier Worldwide Magazine

May 2013 Issue

May 2013 Issue

Exports are the lifeblood of many of the world’s economies. The promotion of exports is therefore a critical element of many countries’ economic policy. Important instruments of export promotion are guarantees issued by export credit agencies (ECAs). In Germany, such ECA guarantees are granted by Euler Hermes Deutschland AG and PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft (Hermes), acting as agents on behalf of the German Federal Ministry of Commerce and Technology.

Hermes securitisation guarantee

Hermes and its predecessors have issued (conventional) export guarantees for almost a century. This is nothing special on the international ECA market. What is special is the far more recent development of the Securitisation Guarantee. This add-on guarantee allows export financing banks to pursue one of finance’s mega-trends of the last decade or so: the removal of risk from the bank’s balance sheet to the capital markets (referred to herein as ‘capital-marketisation’).

For capital-marketisation, the export loans and the ECA cover must fulfil certain requirements not met by traditional export loans with a conventional cover. The Securitisation Guarantee, which is essentially a refinancing guarantee, helps to meet these requirements.

Through the Securitisation Guarantee, the refinancing bank may refinance itself through capital market instruments such as asset-backed securities or German covered bonds (Pfandbriefe). Eligible policyholders are German and foreign credit institutions (the latter on a case-by-case basis) if the application is made in addition to a standard Hermes buyer credit guarantee. Beneficiaries include all German credit institutions and (on a case-by-case basis) foreign credit institutions, insurance companies and pension funds, or special purpose vehicles (SPV).

The structure is as follows: First, the export financing bank which already benefits from government insurance for a buyer credit at 95 percent applies for a Securitisation Guarantee via Hermes with the refinancing institution as beneficiary. Second, if the export financing bank (or the underlying borrower) cannot meet its obligations towards the refinancing bank, 100 percent of the refinancing bank’s claims are reimbursed by Hermes upon first demand. Finally, Hermes will then seek compensation from the export financing bank.

Effective 1 July 2011, the Securitisation Guarantee was significantly improved in the sense that, inter alia, the refinancing institution obtains an independent legal claim against Hermes.

Refinancing via German covered bonds (Pfandbriefe)

It is possible to use the Securitisation Guarantee for a refinancing of covered claims by asset-backed securities. However, for a number of economic and legal reasons the Securitisation Guarantee has not yet been used widely for ‘True Sale’ transactions. Of far more practical importance is the refinancing of export loans via the Pfandbrief, which is a secured bond whose quality and standards are regulated by the German Covered Bonds Act (Pfandbriefgesetz) and supervised by the Federal Financial Services Supervisory Authority (BaFin). Only credit institutions complying with the stringent demands on quality laid down in the Pfandbriefgesetz and holding a licence from BaFin are permitted to issue Pfandbriefe (Pfandbrief Banks).

The total amount outstanding under any Pfandbrief, including its aggregate interest income, must be covered by the Deckungsstock (the ‘Cover Fund’), which is a pool of specified qualifying assets at their nominal value, comprising the respective Pfandbrief Bank’s security. Depending on the type of security, there are different forms of Pfandbriefe such as the mortgage, aircraft or ship Pfandbrief. The public Pfandbrief, which must be secured by public sector loans, is the type of Pfandbrief which may be used in the export finance scenario.

For the export loan to be an eligible cover asset for the Cover Fund, the claim of the Pfandbrief Bank under the ECA cover must be shaped as a direct and enforceable unconditional claim against the Federal Republic of Germany as guarantor for payment, without objections from a third-party legal relationship. As a beneficiary of the Securitisation Guarantee, the Pfandbrief Bank acting as refinancing institution has a 100 percent first demand guarantee against Hermes. Hence, the criteria stipulated by the Pfandbriefgesetz are fulfilled by the Securitisation Guarantee and the Pfandbrief Bank acting as refinancing institution may use the secured loan for its Cover Fund and issue Pfandbriefe.

The refinancing of the export loan via the Pfandbrief certainly works where the export financing bank and the Pfandbrief Bank acting as refinancing institution are two distinct entities. However, under certain circumstances it is also possible that the export financing bank and Pfandbrief Bank are the same legal entity, i.e., the lender refinances its own export loans by its own Pfandbriefe. This is possible because the Cover Fund and the Pfandbrief Bank are considered to be separate entities for insolvency purposes.

Additional support from KfW

From September 2009 until 31 December 2015, commercial banks with access to ECA cover from Hermes have the possibility of opening long-term refinancing of their newly-awarded export credits by means of an institutionalised refinancing program, offered by the German Kreditanstalt für Wiederaufbau (the KfW Program). KfW uses its funds to refinance the export loan. As security for the refinancing loan, KfW will become the beneficiary of a Securitisation Guarantee, applied for under the KfW Program. If there is a repayment issue with the refinancing loan, KfW can draw directly under the Securitisation Guarantee. To apply for the KfW Program, the importer must be located outside the EU and the export credit interest rate must not fall below the OECD consensus minimum interest rate.


In Germany, the Hermes Securitisation Guarantee provides the basis for export loans to be eligible for capital marketisation, notably for Pfandbrief emissions. Many German banks report that, due to the international financial crisis, they have increasingly made use of the possibility to refinance Hermes covered export loans by issuing Pfandbriefe.

The option to use the Hermes Securitisation Guarantee and to cooperate with a German Pfandbriefbank is also attractive to non-German banks acting as export financing bank, as the German Pfandbrief market is one of the most attractive refinancing markets in the world. It is, in principle, also possible to use a guarantee other than the Hermes Securitisation Guarantee for a Pfandbrief emission. The legal foundations for this are already laid out in the Pfandbriefgesetz. Switzerland has reportedly introduced a similar scheme, and it may well be that instruments comparable to the Hermes Securitisation Guarantee will be implemented in other countries, too. Austria, Finland, France and Japan have already shown their interest.


Dr. Rüdiger Litten is a partner and Timo Spitzer is an attorney at law at Norton Rose LLP. Mr Litten can be contacted on +49 (0)69 505096 277 or by email: Mr Spitzer can be contacted on +49 (0)69 505096 204 or by email:

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Dr Rüdiger Litten and Timo Spitzer

Norton Rose LLP

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