Industry observers point out that balance sheet synthetic transactions have
become much less complex in recent years as well. Documentation often
comprised around 500 pages in the past, and is now only 20 to 30 pages long.
Moreover, only the most senior tranches are placed.
Both are desired trends
from a regulatory perspective. That said, mezzanine tranches would provide
much more capital relief to banks and have substantially higher yields than
senior tranches: typical mezzanine yields are in the 8-13% range. Considering
the rock-bottom interest rates in general, mezzanine tranches have probably
become more attractive for investors in recent years (who may require
transparent and simple products, though). Hence, an uptick in mezzanine
issuance could in principle be a boon for investors and issuers alike and free up
capital for more lending.
Also important to note is the difference in the underlying assets between true-
sale and synthetic securitisation. Whereas most of the former securities are
backed by mortgage loans, corporate exposures make up the lion’s share in the
latter case (see chart 10). Loans to large corporations accounted for 53% of the
synthetic portfolios in 2015. More remarkably, a further 30% were loans to
This underlines the importance of balance sheet synthetic securitisation
for the transfer of corporate credit risk from banks to markets and for
strengthening the extension of credit, especially to SMEs and large firms.