The German government plans to issue up to €18 billion of bonds securitized by pension payments from three partially privatized corporates over the next three years. Between €4-5 billion will be issued in 2005, said Joerg Mueller, spokesman for the German Federal Ministry of Finance in Berlin, and the remaining could be completed as early as 2008. “We will issue the full amount, but are not in a hurry—precise timing and structure will depend on pricing and the market,” he noted, adding the Ministry is just now initiating contact with potential underwriters and other market participants. The move comes as pressure mounts on Germany to reduce its national budget deficit. Germany’s deficit is forecast at 3.8% for 2004 and 3.4% for 2005, well above the 3% limit set by the European Union as part of the stability and growth pact agreed in 1997, and German finance minister Hans Eichel is committed to closing the €8 billion funding gap.
Collateral for the deal is the ongoing stream of payments from Deutsche Telekom, Deutsche Post World Net and Postbank to the government for pension liabilities, in the amount of about €1.5 billion per year projected out to 2090. The government is responsible for the pension liabilities of civil servants at the three partially privatized companies, but receives payments equivalent to one third of the liabilities from the corporates.
Ciaran O’Hagan, research analyst at Lehman Brothers in London, said the deal will probably be similar to Germany’s recent securitization of Paris Club debt. Aries, which priced in June, monetized €5 billion equivalent of bilateral loans to Russia by issuing credit-linked notes (BW, 7/5). O’Hagan predicted a German pension liability-backed deal will earn close to a single-A rating, based on the A+ to triple-B+ ratings on the corporates.
