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ABA
April 20, 2018  

ABS Issue Would Rely on Blockchain

A blockchain-technology company pioneering the use of “smart contracts” for securitization purposes expects to complete a debut transaction in the second half.

Symbiont, among a growing number of firms operating blockchain networks, has lined up an undisclosed underwriter for the Rule-144A deal, which will be backed by auto or equipment leases. Using smart contracts similar to those employed by some cryptocurrencies, Symbiont would “tokenize” the leases by packaging both the contracts and performance data and embedding them in a private network.

Symbiont chief executive Mark Smith said the resulting securitization would incorporate elements of both digital assets and cash bonds. In such a transaction, the tokens technically would function as bond collateral, even though bondholder cashflows ultimately would derive from the underlying leases. And while the issuing trust will be set up on the blockchain network, Symbiont has lined up a conventional trustee to ensure bondholders get paid.

The pending deal is expected to weigh in at $750 million to $1 billion, with the senior notes carrying lives of perhaps three years. Symbiont was approached by the unnamed issuer, which along with a large investor wanted to explore the potential efficiencies of blockchain technology.

A key benefit would be centralizing vast amounts of information, giving investors, trustees, rating agencies and servicers real-time access to performance data. Using Symbiont’s technology, dubbed Smart Securities, issuers can manage every step of their capital-markets operations — from originating loans and leases to securitizing and servicing the assets.

Symbiont has been developing the technology since 2013. This month, the New York company said it was teaming up with Ranieri Solutions to explore blockchain applications in the mortgage market, including the use of smart contracts to facilitate bond deals. Symbiont also is working with Credit Suisse and others to adapt blockchain technology for leveraged-loan settlements.

CORRECTION (4/20/18): This article has been revised. The original version misstated the first name of Symbiont chief Mark Smith.