SoFFin extends framework guarantee to Hypo Real Estate Group by EUR 10 billion

The German Financial Markets Stabilisation Fund ("SoFFin") has granted an additional EUR 10 billion framework guarantee, expiring on 12 June 2009, to Hypo Real Estate Group, bringing the aggregate volume of the SoFFin framework guarantees to EUR 52 billion.

The need to extend the framework guarantee arose as a result of credit collateralisation effects, amongst other factors.

Hypo Real Estate Bank AG, part of Hypo Real Estate Group, will use the guarantee framework to collateralise debt securities to be issued in order to cover the Group's short to medium-term liquidity needs. These debt securities are due for repayment on 14 May 2009. The liquidity is required to repay
interbank loans, bonds, and customer deposits due. In addition, Hypo Real Estate will use the liquidity to pledge additional collateral to other market participants, central banks, and investors. This is the result of distortions on international financial markets, which have been extreme in some cases.
Hypo Real Estate Bank AG will pay to SoFFin a pro-rata commitment commission of 0.1% on the undrawn portion of the framework guarantee, and a 0.5% p.a. fee on guarantees drawn upon.
Negotiations between Hypo Real Estate and SoFFin regarding more extensive and longer-term liquidity and capital support measures for the Group have not yet been finalised.

The additional liquidity requirement is also attributable to credit collateralisation effects. Central banks have required all market participants to increase the haircut on bank bonds used as collateral, including those debt securities issued under a SoFFin guarantee. For instance, the lending value of debt securities issued under a guarantee by the Federal Republic of Germany was lowered from 98.5 per cent to 93.5 per cent. As a result, Hypo Real Estate must pledge a higher amount of SoFFin-guaranteed bonds to raise a given liquidity volume. Higher excess coverage requirements adopted by rating agencies for Pfandbrief issues (which have been tightened for all market participants) have a similar effect.

source :Hypo Real Estate