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The International Finance Corporation’s long-awaited debut transaction last week under its Warehouse Enabled Securitization Program ( WESP ) – IFC Emerging Markets Securitization 2025-1 – marked another step towards the creation of a viable market for securitized multilateral development bank ( MDB ) credit exposures and provided a boost to the much-vaunted scale-up of this burgeoning and potentially enormous market.
According to the Multilateral Development Banks Comparison Report 2025, published earlier this month, covering 15 leading institutions, the aggregate combined MDB paid-in capital of US$150 billion has been leveraged to over US$1.4 trillion of outstanding development assets ( net disbursed loans and investments plus guarantees ). If just a fraction of that credit exposure is transferred to private investors via securitization, it will have grown into a viable, investable asset class.
MDB securitization ticks a lot of boxes. It enables MDBs to offload assets or credit exposures in true-sale or synthetic format to boost lending capacity; it is a viable response to the G20 call for action to MDBs to optimize their balance sheets; and it gives investors the opportunity to gain exposure to attractive returns from diversified pools of corporate and project loans and guarantees in emerging markets.
It can be hard for institutional investors to do the necessary credit work and find the ticket sizes they require to invest directly in corporates in low and middle-income countries. The beauty of MDB securitization is that credit exposures already have passed muster with MDB internal ratings, credit committees, and boards. For investors, an added benefit is MDBs’ preferred creditor status, providing an extra layer of comfort. From a strategic perspective, this promising market takes MDBs into a new originate-to-distribute paradigm.
What the market needs is a more frequent issuance pipeline; until now, deal flow has been episodic. More frequent activity will broaden the market to new players: deals done to date have involved a concentrated nucleus of anchor investors and insurers. For investors seeking to access MDB credit, the good news is that the World Bank Group said it will launch regular issues, “establishing a scalable and replicable model for future growth”. Future offerings under the WESP may come in local currencies or be focused on specific industry sectors.
To further leverage activity, the IFC will share the technology and knowledge from the WESP so that other MDBs and development finance institutions “can join efforts to attract private investment, create jobs and improve the lives of the poorest”. The report, A Future-Ready World Bank Group, published last September, noted that the World Bank ( a.k.a. the International Bank for Reconstruction and Development ) itself is developing a new loan structure with similar objectives.
Developments are taking place beyond the World Bank Group: last year, the African Development Bank Group ( AfDB ), Development Bank of Southern Africa, and institutional investors ( Academy Securities, Africa50, Newmarket ) signed a letter of intent to explore the establishment of an evergreen multi-originator synthetic securitization platform with a combined, diversified reference portfolio of loans and guarantees of between US$1.5 billion and US$2 billion. The platform will see the transfer of mezzanine tranches to investors; originators will retain senior tranches. Other MDBs have also developed securitization programmes and launched issues.
IFC deal details
The IFC’s transaction last week was a US$510-million, London-listed global emerging markets collateralized loan obligation ( due December 31 2035 ) consisting of a portfolio of variable-rate IFC loans to 57 obligors. A quarter of the portfolio consists of corporate infrastructure loans, while 55% is made up of senior secured loans and 45% senior unsecured.
Arranged by Goldman Sachs, the true-sale transaction was structured with a US$320-million Class A senior 144a/Reg S Triple A ( Moody’s ) tranche, a US$130-million mezzanine tranche insured by a consortium of credit insurers, and a US$60-million equity tranche. IFC remains lender of record for the portfolio and retains own-account risk of at least 25% of every loan.
Credit enhancement for the senior notes is 36%, higher than exposure to any single country in the portfolio, which is diversified across 28 countries in Eastern Europe/former Soviet Union; North and South America; and Asia. The top five industry exposures make up about 64% of the portfolio; the largest are to beverage, food and tobacco ( 18.8% – tobacco is excluded ), telecoms, and construction and building ( 13% each ).
Previous steps
The IFC deal follows Scaling4Impact, an October 2024 synthetic securitization by IDB Invest, the private sector arm of the Inter-American Development Bank ( IDB ), which offloaded US$1 billion of IDB credit risk in 20 countries in Latin America and the Caribbean from 10 industry sectors.
Arranged by Santander, it came with an US$870-million senior tranche; a US$100-million mezzanine tranche ( some of which was bought by Newmarket Capital, the remainder insured by AXIS and AXA ); and a US$30-million junior tranche retained by IDB Invest. The credit-loss waterfall sees credit losses absorbed by junior tranches. Investors in the senior tranche suffer losses only if portfolio losses exceed 13%.
Also in 2024, the IDB and the OPEC Fund for International Development executed an exposure exchange agreement involving a synthetic exchange of credit-risk designed to enable each originator to improve portfolio diversification, increase lending capacity, and scale up development impacts.
The West African Development Bank ( BOAD by its acronym in French ) launched its securitization programme ( BOAD Titrisation ) as far back as 2011 and has since launched four local currency transactions. The most recent was in 2023: the 6.10% due 2030 FTC BOAD DOLI-P, raising 150 billion CFA francs ( US$269 million ).
The AfDB completed its second transaction in 2022 with Room2Run Sovereign, a synthetic securitization in which the UK’s Foreign Commonwealth and Development Office ( FCDO ) and three private insurers ( AXA, HDI Specialty and AXIS ) provided credit protection on up to US$2 billion on a notional reference portfolio of loan exposure to 11 member countries from its portfolio of African non-concessional sovereign loans, with an estimated additional US$2 billion in new lending capacity for climate finance.
The insurers directly covered principal defaults of up to US$400 million on a first-loss basis. The FCDO was a second-loss guarantor for US$1.6 billion. AfDB remains the lender of record of the loans and guarantees in the reference portfolio.
The Asian Infrastructure Investment Bank ( AIIB ) committed US$60 million to Bayfront Infrastructure Capital II, the US$401.2-million Infrastructure Asset-Backed Securities offering done in 2021 of 27 project and infrastructure loans across 13 countries and eight industry sectors. The vehicle issued five classes of investment-grade notes, listed on the Singapore Exchange. AIIB co-founded Bayfront alongside Clifford Capital on a 30%-70% ownership basis.
The AfDB gets the accolade for the first hard-currency benchmark MDB securitization for its US$1-billion Room2Run 2018 synthetic securitization of mezzanine credit exposure to a US$1 billion portfolio of approximately 50 seasoned non-sovereign loans to entities in 16 African countries and 13 industry sectors. Arranged by Mizuho International, Mariner was the lead investor; Africa50 also invested in the private-sector tranche. The European Union’s European Fund for Sustainable Development provided credit protection in the form of a senior mezzanine guarantee.
