(~ $ 8 billion in securities issued)
Delphi has been privileged to be a major participant in global financial transactions. Delphi’s unique capabilities initially arose from the structured finance experience of founder Craig Allen at Bear Stearns. As a result of those capabilities, Delphi was able to establish innovative, market-changing structures in several new markets.
Among the innovative structures, Delphi created, as a principal, three main types of financing; 1) Short-duration and trade-finance related facilities – particularly relevant to developing markets, 2) Structured-finance transactions for longer-term debt, and 3) Asset-backed commercial paper finance facilities – backed by commercial receivables.
Short-Duration Trade Finance
One of the first set of transactions completed by Delphi involved the establishment of Export Trade Ltd. – a Cayman Island company formed with Dresdner Bank.
This entity began in the early 1990’s and continued through about 2001 – providing pre-export finance to many clients, primarily in the commodity space of Latin America. These were very, very good commercial counterparts that were often limited by the credit attributes of the country in which they were organized.
Export Trade Ltd served such industries as paper pulp, general agriculture – including fruits and leathers, edible oils, etc. Some of the best companies in South and Central America were able to avail themselves of trade-based financing at reduced rates due to the structure that was created. The Export Trade model involved purchasing goods with a payment before the goods were exported, and via string-trade contracts, further selling the goods on to the normal customers of the exporters / producers. As a commercial counterpart, Export Trade was able to collect payments for the goods directly from the purchaser / importer (in hard currency), using those payments to re-pay the advance-purchase facility prior to the money passing into the exporter company. The facility would revolve – but Export Trade would ‘touch’ the entire facility balance multiple times per year for each exporter.
This structure grew to approximately a $350 million balance sheet, which was maintained until Dresdner’s ultimate withdrawal from these markets (in 2001-2002).
Delphi was fortunate to have been part of the early development of the asset securitization market in Europe. While at Bear Stearns, Craig Allen had a leading role in building the first securitization transactions on the continent (via Bear Stearns cooperation agreement with Credit Lyonnais). This gave Delphi a very big advantage at winning agreements with other European banks to apply the same securitization principles in their own, distinct legal environments.
One early client was ASLK/CGER bank in Belgium. This work did not lead to a closed transaction, but the work further cemented Craig’s (and Delphi’s) claim to innovation within the continental European framework. The trade-finance work with Dresdner Bank also enhanced the European connections.
Some of Craig’s old Bear Stearns associates introduced Delphi to Unibank in Denmark. The drama of that early relationship resulted in Delphi partnering with Unibank in the creation of new securitization structures in the Nordic market for repackaging Danish mortgage bonds (the CMO Denmark transactions). Then, with a slight twist, the same legal structure was used to create repackaged bank debt (the CBO Denmark transactions). In all, there were approximately USD $ 5 billion in securities issued between 1995 and 1999.
There was a great deal of statistical, database and modeling work required for these transactions. Not only did trading systems need to be built that could model the structured transaction cash flows for valuation and hedging – but systems for keeping track of pre-payments and all of the underlying assumptions required as inputs to the models needed to be built. For this, Craig found some fantastic young, eager, smart people that could support this work in Europe. Many thanks to them. One of the subsidiaries of the bank – Structured Finance Servicing – needed to be built and staffed so that it could handle the operational tasks associated with the securities issuance.
Another great opportunity arose as markets opened up at the Euro conversion, around 2000-2001. Delphi was introduced to Rheinische Hypothekenbank (RheinHyp), a CommerzBank subsidiary – and was engaged to lead them to complete the first pan-European securitization of mortgages – and we denominated the securities in Euros (this was the EUR 1.34 Europa One transaction).
This Europa One transaction involved a synthetic securitization component – since the collateral were ‘underwater’ in price and could not be transferred off the balance sheet of the bank without incurring a loss. So, with the excellent teamwork of the placement team at Barclays Bank, we had RheinHyp issue Pfandbriefe to collateralize the bonds that were issued, but created a credit-default swap (where RheinHyp paid something like an insurance premium to the securitization structure) and the coupon from the Pfandbriefe, together with the swap payments were sufficient to cover the payments on the Europa One bonds. It was a great structure and many thanks are due to the teams that helped make this possible. (Cherry Allen was part of the team that lived in Frankfurt to help make this trade doable.)
As with the Danish work, not only was there the financial modeling and systems that needed to be built, but there were all sorts of operational systems that needed to be designed, built and put into practice to put a ‘master servicer’ in place to manage the bonds. This was great work.
Asset-Backed Commercial Paper
Perhaps because of the success of the CMO Denmark bonds – or simply because the Danish leaders of the securitization effort at Unibank were extremely talented – the leaders of the Unibank capital markets rapidly were promoted to greater positions of responsibility within the bank. As they moved forward in their careers, they and Delphi elected to create yet another structure to capture some business within the Nordic markets.
The EUR 2 billion commercial paper conduit, Viking Asset Securitisation Ltd (Viking), was created in Denmark to purchase commercial receivables from Nordic customers and, together with certain guarantees and credit-enhancements from the bank, Viking was able to issue highly-rated, short-term commercial paper to fund the purchase. This vehicle began issuing commercial paper in about 2001 – and although the asset-backed commercial paper market has been seriously cut back – the Viking structures continue to serve Nordic customers to this day. Craig Allen is still a member of the board of these companies.
There have been other structures and financing-types that Delphi has developed through the years. Some, for example, have involved the securitization of IO strips from the U.S. Small-Business Administration (SBA) loans issued to small- and medium-sized enterprises in the U.S. market. Delphi has developed Shariah-compliant structures for financing auto exports by major auto manufacturers. There are several other crazy financing transactions completed by Delphi.
What has been clear, though, throughout all of Delphi’s history – is that when a financing need arises, Delphi has been able to create a financing structure, build the analytics for valuation and credit management, and create the systems and operational tools to manage these transactions. Delphi has enjoyed solving these challenges.
See this page for more information about the unique financial products Delphi has developed.