MDB Loans: A New Asset Class for CLOs

Abstract

Use of structured financings for balance sheet management by multilateral development banks (MDBs) is still in its infancy. Three path-breaking deals by the African Development Bank (AfDB) and International Finance Corporation (IFC) are leading the way, however. The two AfDB deals are both synthetic, with the loans remaining on the balance sheet despite substantial risk transfers. The IFC transaction allows co-funding of private sector loans with other lenders. New insights and opportunities will certainly emerge with rising experience in MDB loan deals. A few imperatives for a robust MDB collateralized loan obligation (CLO) market are already evident: (i) public disclosure of the relevant parts of proprietary historical MDB loan performance data; (ii) more-transparent rating agency criteria for MDB securitizations, and (iii) greater management, investor, banker, and MDB expertise in this asset class.