SACE State Guarantees: ESG Relevance and Credit Implications within CLO Transactions

In this commentary, we comment on the positive social impact and related credit implications within structured finance transactions of certain state guarantees issued by SACE S.p.A. (SACE). SACE, the Italian export credit agency, played a pivotal role for the country's economy during the Coronavirus Disease (COVID-19) outbreak by guaranteeing financing operations aimed at supporting the economic sectors more severely hit by the pandemic. SACE currently offers an extensive range of financial guarantees in the context of its extended mission.

Key highlights from this commentary include:
-- An overview of SACE and its guarantee programmes including, but not limited to, the Garanzia Italia scheme;
-- The servicers’ role in ensuring appropriate origination and management of the guarantees as well as their preservation in the context of SME CLO securitisation transactions;
-- An assessment of the social relevance of the Garanzia Italia scheme, as per "DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings" methodology;
-- The analytical framework outlining DBRS Morningstar’s treatment of the Garanzia Italia scheme in the credit analysis of a recent SME CLO securitisation transaction.

“DBRS Morningstar believes that the positive social impact of these state guarantees provides a stable footing for underserved borrowers and promotes community cohesion. These guarantee schemes, in our view, contribute towards facilitating access to liquidity, improving confidence in local economy, enhancing borrowers' credit profile and, ultimately, preserving their business continuity", said Daniele Canestrari, Assistant Vice President of European Structured Credit at DBRS Morningstar.