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Swiss wealth manager plans novel Swiss franc art securitisation deal
by Nathan Tipping & Lisa Lee
Masterpiece-rich but cash-poor? Xeno Marugg at Finanz Konzept might be able to help. The Swiss wealth manager is planning a securitisation backed by fine art, one of the first such deals in Europe and the only one denominated in Swiss francs.
The asset-backed note, issued by an operating entity called ArtSecure, would be backed by loans to ultra-high-net-worth individuals and secured against fine art.
“It’s a Swiss franc, higher-return, private-market debt investment. That’s the core idea,” said Marugg, head of corporate finance at the Zurich-based family office, which is acting as the placement agent on the deal.
High-net-worth individuals typically use art-secured loans to free up liquidity without selling pieces from their collection outright.
To originate the loans, the company is partnering with Thomas Gonzalez, an art loan broker. Borrowers with bank loans would repay them with the proceeds of the ArtSecure note, which would be priced competitively, Marugg said. The art collateralising the ABS would be transported to a secure art facility in Switzerland at the borrowers’ expense.
It’s a Swiss franc, higher-return, private-market debt investment
Xeno Marugg
Head of corporate finance
Finanz Konzept
Each work backing the deal would ideally be valued at around EUR 500,000 and the loans would have a LTV of around 40%-60%, Marugg said.
In focusing on art securitisation, Finanz Konzept aims to capitalise on a niche but growing market. Last year, auction house Sotheby’s issued a public USD 700m securitisation backed by fine art. Luxembourg-based Griffin Art Partners has managed similar transactions in Europe.
What has made securitisation possible is the growth in recent years of secured art lending, said Doo-Sik Nam, senior vice president in the US ABS ratings team at Morningstar DBRS, which rated the Sotheby’s deal.
Art collectors don’t just have a financial incentive to repay their loans on schedule; late payers could risk being ostracised by their art-collecting peers, Nam believes. “The unique hammer they have to encourage people to pay is to ban them from this ecosystem,” he said. “For people of this standing, it’s a powerful thing to be banned.”
Finanz Konzept plans to raise EUR 250m from around 25-30 investors, comprised of family offices, high-net-worth individuals, pension funds and insurance companies.
However, only EUR 100m of notes would initially be issued, with Finanz Konzept maintaining the option to increase the deal to EUR 250m later by calling in additional capital, contingent on originating more art loans.
Structured as a uni-tranche asset-backed note, the deal would have a seven-year maturity, would pay a coupon of 250bps over SARON, the Swiss average rate overnight, and would be issued at a face value of 100.5, according to an investor presentation seen by Creditflux.
Any temporary interest shortfalls would be covered by an interest reserve account that would represent 1% of the total principal and would be funded by each borrower paying six months of interest upfront.
Finanz Konzept is aiming to purchase insurance that would protect against any shortfalls if the underlying art cannot be sold in the event of a principal default.
