BST ENHANCED SUPPORT FOR SMES-MIDCAPS

The operation consists of an Intermediated Programme Loan under the EU Programme Loan for ABS Operations (2022-0538). The project involves a portfolio of new investments in Portugal, focused on both new and existing buildings, with an emphasis on energy efficiency. These investments will be carried out by small and medium-sized enterprises (SMEs), mid-caps, and potentially by individuals and homeowners' associations. The transaction is structured as a synthetic securitisation, backed by a portfolio of mortgage loans to individuals.

The aim is to enhance access to finance for EU SMEs and mid-caps, climate and/or innovation financing as well as other policy objectives.

The main purpose of this operation is to facilitate financial support for SMEs and Mid-Caps. Banco Santander Totta ("BST") has a good track-record in leveraging EIB operations to support the development of sound sub-investment projects in Portugal. The EIB contribution takes the form of financial benefit, longer maturity and customised terms.

Out of the total Project Cost estimated at up to EUR 294m, up to EUR 44m (15%) will comply with the EIB climate action guidelines, mainly dedicated to Energy Efficiency projects (new construction of Near-Zero Energy Buildings) to be carried out by real estate developers and private individuals and, potentially, building refurbishments.

SMEs and MidCaps are facing significant financial stress / distress and, without addressing their short-term liquidity and investment needs, the adverse economic effects could be long-lasting. The economic impacts are widespread, as value-chains have been disrupted and consumer demand has slowed down. By extending favourable lines to SMEs and Mid-Caps via an established financial intermediary, the EIB can play a counter-cyclical role, preserve employment and positively contribute to the recovery of not only the final beneficiaries but also the whole economy.

The operation supports the EU's and Bank's priorities in the energy sector and the EIB's climate action objectives. Additionally, it is in line with the EIB's Action Plan for Affordable and Sustainable Housing. Through energy savings, energy efficiency projects reduce carbon externalities and, in most cases, air pollution and other negative externalities such as increased comfort and air quality in the dwellings, social and public benefits that are not fully internalised by private investors. The energy efficiency market is subject to asymmetric information. In the buildings sector, rental properties are subject to split incentives between property owners, who undertake energy efficiency investments, and tenants, who pay the energy bills.

The financial intermediary is deemed to be capable of implementing the operation, considering its overall experience. The operation is expected to be both financially and economically viable, with a good economic rate of return (ERR) and positive broader social benefit.

The operation enhances access to finance for SMEs and Mid-Caps and improves financing conditions for them through longer tenor and reduced financing costs. EIB funds are made available to the final beneficiaries on financially advantageous terms, thus reducing the financing costs of the underlying sub-projects.

The operation enhances access to finance for final beneficiaries and improves financing conditions for them through Transfer of Financial Advantage ("ToFA") and longer tenor of sub-loans of the new portfolio.

In addition to its financial contribution, the operation provides non-financial value by promoting best practices in energy efficiency and supporting the implementation of EU climate and housing policies.

The operation falls within the scope of the EIB's Environmental and Social Standards - "Standard 11 Intermediated Finance". The Borrower / Financial Intermediary has adequate capacity, systems and processes in place for identifying, assessing, managing and monitoring environmental, climate and social (ECS) risks related to the potential sub-projects benefitting from EIB support. The Final beneficiaries will be required to comply with applicable national and EU legislation in respect of environmental and social matters, as appropriate.

Final beneficiaries will be requested to comply with applicable national and EU legislation, as appropriate.