These materials are not an offer of securities for sale in the United States. The securities to which these materials relate have not been registered under the U.S. Securities Act of 1933, as amended (the Securities Act), and may not be offered or sold in the United States absent registration or an exemption from registration under the Securities Act. There will be no public offering of the securities in the United States. BOLD is not authorised for public sale in Switzerland and must therefore not be publicly marketed in Switzerland.
BlueOrchard Loans for Development 1/2006 |
BlueOrchard successfully closed a second Collateralized Debt Obligation (CDO) called BlueOrchard Loans for Development, or BOLD, on April 22, 2006. Our partners are Morgan Stanley and FMO (the Netherlands Development Finance Company).
Putting together a CDO is quite a daunting task, in that it requires issuing bonds to investors at pre-negotiated conditions on a very specific date, April 22 in this case. Simultaneously, the money flowing into the vehicle from investors is used to issue a portfolio of loans to a diversified group of microfinance institutions (MFIs) at pre-negotiated conditions.
As a result, this product required a great deal of work and coordination since it involved running three parallel projects over five months prior to the closing date:
Putting together a CDO is quite a daunting task, in that it requires issuing bonds to investors at pre-negotiated conditions on a very specific date, April 22 in this case. Simultaneously, the money flowing into the vehicle from investors is used to issue a portfolio of loans to a diversified group of microfinance institutions (MFIs) at pre-negotiated conditions.
As a result, this product required a great deal of work and coordination since it involved running three parallel projects over five months prior to the closing date:
- Our team talked simultaneously to over 30 microfinance institutions in more than 15 countries. This involved negotiating funding terms and collecting a complete set of documents, which then had to be reviewed and accepted by lawyers for the MFIs and the investment bank.
- The legal documentation, of which microfinance institutions saw only a very small part, was voluminous: in the end, BOLD required no less than 52 very detailed legal documents, which were then subject to review and negotiation by many different partners.
- Although distribution of the CDO was officially the responsibility of Morgan Stanley and FMO, BlueOrchard was involved in every single meeting with investors in Europe and the USA, and was especially instrumental in educating them about microfinance and convincing them of its advantages.
- It is the largest single commercial investment transaction ever completed in microfinance (USD 99.1 million), offering 5-year funding at fixed rates to 21 fast growing MFIs in 13 countries.
- It represents the first time a global investment bank, Morgan Stanley, contributes its know-how to the structuring of an investment product for the microfinance industry. Morgan Stanley teamed up with BlueOrchard because of our long and solid track record and extensive knowledge of the microfinance market.
- It offers funding in local currency for about 25% of its total portfolio with local rates fixed for a period of five years while completely hedging the foreign exchange risks for the investors. Currencies involved include the Mexican peso, the Colombian peso and the Russian rouble.
- It was sold for a very large part to mainstream institutional investors, many of them portfolio managers in European commercial banks without any prior knowledge of microfinance. Currencies available for investment were the US dollar, the Euro and the British pound.
- The Dutch development bank FMO accepted to underwrite the entire subordinated portion of the product, thereby acting as a catalyst for private sector development by accepting a "first-risk" position in the structure. FMO will hopefully show the way for other international and national development banks.
- They can be structured to meet the needs of all types of investors with varied "risk-return" profiles, thus allowing mainstream institutional investors, foundations, private banking clients and public development finance institutions to invest simultaneously.
- By pooling together a large number of loans within a very diversified portfolio of microfinance institutions and countries, they enable economies of scale while offering important sources of funding to each individual institutions.
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