With Impaxis as the lead manager and its subsidiary BOAD Securitization as the arranger, the West African Development Bank (BOAD) wrapped up a CFA160 billion securitization deal in record time, solidifying its position as a leader in financial innovation in West Africa.

After raising CFA150 billion in May 2023 through the securitization of sovereign debt, the West African Development Bank (BOAD) successfully completed another securitization last week, raising CFA160 billion. This latest operation was oversubscribed in less than a day, the Bank told Ecofin Agency.

The deal included three tranches, which aligned with international standards, and was the first of its kind in the region. Adji Sokhna Mbaye, Director of BOAD Securitization and arranger of the deal, pointed out that the previous issuance had only two tranches. The mezzanine tranche B, valued at CFA28.75 billion with a 9.5% interest rate, was particularly sought after and was fully subscribed within one day. This tranche attracted significant interest from both regional and international investors.

BOAD’s Reinvestment Strategy

More than 80% of the operation was reinvested in the securities by BOAD itself. The two other tranches—a senior tranche for CFA120 billion at 4.5% interest and a junior tranche for CFA11.25 billion—were bought back by BOAD. This transaction aimed not only to obtain liquidity but also to optimize the bank’s balance sheet, protect its credit rating, and improve its loan portfolio. BOAD is the only institution in the region with an "investment grade" international rating, a status it has leveraged in recent years.

Adji Sokhna Mbaye explained that BOAD’s reinvestment approach helps the bank gain economic capital, diversify its liquidity sources, and reduce balance sheet leverage.

The securitization process allows BOAD to transfer part of the credit risk associated with the underlying receivables to mezzanine tranche investors. By buying back some of the tranches (senior and junior), the bank keeps some exposure to risk. However, the tranche structure minimizes risk for the senior tranche, improving the bank’s risk management. Mbaye noted, "Credit enhancement mechanisms used in securitization allow the senior tranche to achieve a higher rating than the underlying portfolio."

She added, "The lower tranches (mezzanine and junior) act as defensive lines. The junior tranche is the first line of defense, followed by the mezzanine tranche. In the event of a default or delay, the junior tranche is impacted first, minimizing the risk for the senior tranche. Moreover, a liquidity reserve within the operation significantly reduces risk for senior tranche investors." This setup allows BOAD to prioritize payments with a 4.5% coupon on the CFA120 billion senior tranche, representing 75% of the CFA160 billion total.

An analyst noted that rating agencies generally view positively an institution’s ability to execute such securitization deals and repurchase its own tranches.

According to Adji Sokhna Mbaye, who has experience at Morgan Stanley, Bank of America Merrill Lynch, Natixis, and Citigroup, the overall interest rate for this operation, combining all three tranches, is around 6.5%. This is similar to the previous May 2023 operation and lower than the yields currently demanded by regional investors on public securities, which can reach 10% in some countries.

The assets BOAD securitized include receivables from both public and private sectors within the WAEMU region. These receivables, chosen from BOAD’s private and public debt portfolios, total CFA150 billion, with CFA4 billion considered in default. Among the 29 receivables, 24 are current with regular payments, and defaulted receivables represent only 2.67% of the total. Interest rates range from 4.50% to 10.25%, with maturities between 2026 and 2031, including several public projects. GCR West Africa, now a Moody’s affiliate, rated these receivables relatively well. The mezzanine tranche B is rated AA+, while the senior tranche is rated AAA.

Future Plans

This issuance marks a new phase in BOAD’s extensive securitization program, which aims to raise over CFA500 billion to support the "Djoliba" 2021-2025 strategic plan. This plan seeks to further establish BOAD as a leader in driving sustainable impact in West Africa. Serge Ekue announced in May that, inspired by the initial operation, new securitizations are planned, including those targeting the residential real estate sector, similar to Residential Mortgage-Backed Securities (RMBS) to attract specialized investors. Some of these funds will support BOAD’s mortgage subsidiary, CRRH-WAEMU, led by Yedau Ogoundele.

With this second consecutive success, BOAD is already considering a third securitization for 2025, potentially exceeding the amounts of the previous two transactions. This comes in a still-developing securitization market with significant potential, estimated to offer over CFA50 trillion in additional liquidity for banks and market participants.

Combining these operations with hybrid capital issues and credit insurance for portfolio coverage, BOAD aims to stay at the forefront of financial innovation, expanding its commitments with increasing disbursements.