GENERAL MEETING DRAFT - Bankier.pl

In some circumstances purchase companies fund further SPVs which buy loan portfolio.
The main purpose of these transactions is to give corporate clients access to the securitization market
and thus to lower funding costs than would be borne with direct funding.
Arbitrage conduits require the formation and management of an SPV that buys highly rated corporate
bonds, asset-backed securities and loans.
The purpose is to achieve a profit on the spread between the yield on the assets held, usually
medium/long-term, and the short/medium-term securities issued to fund the purchase.
The conduits’ purchase of assets is financed by short-term commercial paper and medium-term note
issues.
Payment of interest and redemption of the securities issued by the conduit therefore depends on cash
flow from the receivables purchased (credit risk) and the ability of the conduit to roll over or replace its
market funding on maturity (liquidity risk).
To guarantee prompt redemption of the securities issued by the conduit, these transactions are
guaranteed by a standby letter of credit covering the risk of default both of specific assets and of the
whole program.
The underwriters of issued securities also benefit from security provided by specific liquidity lines which
the conduit may use if it unable to place new commercial paper to repay maturing paper, e.g. during
market turmoil.
These liquidity lines may not however be used to guarantee redemption of securities issued by the
conduit in the event of default by the underlying assets.
In its role as sponsor, the Group selects the asset portfolios purchased by conduits or purchase
companies, provides administration of the assets and both standby letters of credit and liquidity lines.
For these services the Group receives fees and also benefits from the spread between the return on the
assets purchased by the SPV and the securities issued.
Starting from H2 2007 the securities issued by these conduits experienced a significant contraction in
investor demand. The Group has consequently purchased directly all their outstanding commercial
paper.
However, the situation improved during 2009, as shown by the trend of exposures to conduits sponsored
by the Group, which are disclosed in the table below.
Exposures sponsored by the Group
2009 CONSOLIDATED REPORTS AND ACCOUNTS
(� thousands)
Amountsasat
12.31.2009 12.31.2008
Balance sheet exposures 2,347,103 5,268,124
- Arabella Finance Ltd - 2,185,413
- Bavaria Universal Funding Corp 751,603 322,644
- Salome Funding Ltd 1,595,500 2,760,067
Credit facilities 1,614,149 1,775,512
- Arabella Finance Ltd 1,556,083 219,712
- Bavaria Universal Funding Corp 1,555 1,109,850
- Salome Funding Ltd 56,511 445,950
The lines of credit shown are the difference between total credit lines granted and the amount of
commercial paper underwritten by the Group. This figure is the additional risk exposure incurred by the
Group and arising from commercial paper purchased by third parties and commitments to purchase
further assets under the program.
Cash exposures are commercial paper purchased by the Group. These exposures are fully consolidated
and therefore not visible in the consolidated accounts.
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