Basket Bonds as an Engine of Growth

1. Introduction and Macroeconomic Framing: The Capital Markets Union

Across Europe, small and medium sized companies still depend on one main source of money: bank loans. In the United States, companies of all sizes routinely raise money directly from investors through bonds, funds, and other market instruments. In Europe, that path is mostly reserved for large corporations. SMEs, which make up the vast majority of European businesses and jobs, are largely left with the bank as their only real option.

That dependency is a problem. When central banks raise interest rates, or when banks become more cautious about lending, credit tightens, and SMEs are usually the first to feel it, since they have nowhere else to turn.

That dependency is a problem. When central banks raise interest rates, or when banks become more cautious about lending, credit tightens, and SMEs are usually the first to feel it, since they have nowhere else to turn.

This is the idea behind bank disintermediation: creating ways for companies to raise money directly from investors (pension funds, insurance companies, asset managers) instead of relying only on a bank loan. Banks do not disappear from the picture; they simply take on a different role, helping structure and arrange these deals rather than being the only lender.

This is a priority for the European Union as a whole, not just for individual countries. The European Commission's Capital Markets Union (CMU) is a long standing initiative to build a single, more integrated capital market across all EU member states, so that companies anywhere in Europe (not just in large financial centres) can access funding beyond their local bank. One of the biggest obstacles the CMU keeps running into is size: a single SME trying to raise 1 to 2 million Euros on its own is simply too small and too costly, in relative terms, for an institutional investor to evaluate and invest in.

Basket bonds are one of the clearest solutions the market has found to this problem, and they are spreading across the EU, starting in Italy and now reaching Portugal, as a practical, national level expression of the CMU's goals.

2. The Financial Engineering: Securitisation, the SPV, and Asset-Backed Securities

A basket bond works by grouping many small company bonds into one larger, investable product. Here is how it works, step by step.

A group of SMEs (each too small to issue a bond on its own) issue individual bonds known as minibonds, usually somewhere between under 1 million and 20 million Euros each. A separate, independent legal entity called a Special Purpose Vehicle (SPV) is created for one purpose only: to buy up all of these minibonds. Because the SPV is legally separate from the banks or companies that set it up, the money flowing in from the SMEs is protected; it is reserved exclusively for paying back the investors in the final product.

The SPV then combines all the minibonds it has bought into a single pool (the "basket") and issues one larger, standardised bond backed by that pool. This is called an Asset Backed Security (ABS), and it is what gets sold to institutional investors. This is the real trick of the whole structure: a set of small, hard to access company loans becomes one large, standardised investment product that meets the size and format institutional investors need.

Within that ABS, payments are usually split into layers, or tranches, based on risk. A safer, senior layer gets paid first and is designed for cautious investors. A riskier, subordinated layer absorbs losses first if something goes wrong. The logic is simple: if one SME in the basket fails to pay, that loss is absorbed by the riskier layer and cushioned by all the other companies still paying normally; it is not passed on in full to any single investor. This is what allows the safer layer to carry a much better risk profile than any one SME loan would have on its own, and it is precisely this improvement that makes the product attractive to investors who would never consider lending to a single small business directly.

3. Who Can Join: Eligibility and Key Requirements for Companies

Not every company can simply sign up. Basket bond programmes are built around a defined set of eligibility rules, designed to keep the risk pool manageable and predictable for investors. While exact criteria vary slightly by programme and country, the recurring requirements are:

• Company size: Eligibility is generally restricted to companies that qualify as SMEs under EU definitions (based on turnover, balance sheet size, and number of employees). The instrument is not designed for large corporates, who already have market access.

• Minimum credit quality: Companies are screened and placed into a risk rating band. For example, the BPF programme uses bands of 1 to 4 for general SMEs, and a wider 1 to 6 band for tourism companies, reflecting more varied credit profiles in that sector. Companies with very weak credit histories typically do not qualify.

• Issuance size caps: Individual companies are usually capped in how much they can raise through the programme. In Portugal's case, this is up to 2 million Euros per company, under EU de minimis state aid rules, which limit how much public support any single business can receive.

• Maturity structure: Bonds are typically issued with fixed terms, often up to seven years, giving both the company and investors a clear repayment horizon.

• Sector or strategic alignment (where relevant): Some programmes are designed around specific sectors the state wants to support. Portugal's tourism focused basket bond, run with Turismo de Portugal, is an example of this targeted approach.

• Formal registration and disclosure: Companies typically need audited or verifiable financials and must go through the origination process run by the platform operators managing the programme (in Portugal, this is done through Flexdeal and Raize).

In short: the programme is built for real, established SMEs with a credible repayment capacity, not startups or distressed companies, because the whole structure depends on a pool of genuinely diversified, reasonably reliable payers.

4. The Risk Sharing Model and the Role of Public Guarantees

Even with pooling, the risk gap does not disappear completely. Big institutional investors (especially pension funds and insurance companies, which face strict capital rules) are often still hesitant to hold exposure to unrated small businesses, simply because there is not much historical data on how these loans perform over time.

This is where National Promotional Banks step in, not to subsidise the companies, but to absorb risk. They do this through a first loss guarantee: the public institution agrees to cover losses up to a certain point, before any losses reach private investors. It is a relatively small, clearly defined public commitment that unlocks a much larger amount of private investment (public money doing the work of removing the first layer of uncertainty, so private capital feels comfortable stepping in for the rest).

Italy has been the reference market in Europe for this model. Cassa Depositi e Prestiti (CDP) runs both regional basket bonds (where a regional government guarantees a share of losses) and market based versions without that regional backing. Programmes like the Garanzia Campania Bond and the Puglia Basket Bond, each guaranteed at 25 percent by their respective region, with CDP and Mediocredito Centrale as anchor investors, have financed dozens of SMEs. Altogether, Italy's basket bond programmes have mobilised close to 2 billion Euros since they began, which is proof that the model scales over time.

Portugal joined this space in June 2026, when the Banco Português de Fomento (BPF) launched the country's first publicly guaranteed basket bond programme: two parallel 50 million Euro products (100 million Euros total), one open to SMEs across sectors (risk rating 1 to 4), and one focused on tourism, in partnership with Turismo de Portugal (rating 1 to 6). The BPF guarantee covers up to 80 percent of invested capital, far higher than Italy's typical 25 percent, reflecting how much more de risking is needed to build investor confidence in a brand new market.

What matters here is not really the difference between the two countries, it is the continuity. Portugal is not inventing something new; it is applying a model that Italy has already tested and refined over a decade, just with a bigger public safety net to get things started.

Conclusion: The Future of Scaled Financing

Basket bonds solve two problems at the same time. For SMEs, they solve a problem of scale: access to capital markets that would otherwise be completely out of reach. For institutional investors, they solve a problem of diversification: unrated SME credit becomes something they can actually invest in, once it is pooled, tranched, and backed by a public guarantee.

But there is a third, equally important benefit that deserves to be restated clearly: basket bonds ease the pressure on the banking system itself. Every euro an SME raises through a basket bond is a euro that no longer needs to sit on a bank's balance sheet, tying up that bank's capital and concentrating risk in a single lender. At scale, this matters for the whole economy. It means the banking system is less exposed if a wave of SMEs struggles at the same time, and it means credit conditions for SMEs become less dependent on the health, appetite, or caution of any one bank at any given moment. In a period where interest rates and banking conditions can shift quickly, giving SMEs a

second, independent channel to raise money is not just good for those individual companies; it is a genuine stabiliser for the broader financial system.

Looking ahead, the clearest emerging trend (flagged by arrangers like UniCredit and major advisory firms) is the rise of Green Basket Bonds and Sustainability Linked structures, where the pool of underlying loans is built specifically around SMEs investing in the energy transition or measurable sustainability targets. Portugal is already moving in that direction, with the BPF's parallel Turismo plus Sustentável credit line, a sign that future basket bond programmes in Portugal will likely build environmental criteria directly into how the pool is designed, rather than treating sustainability as a separate, add on feature.

References

Banco Português de Fomento (2026). BPF lança primeiras Basket Bonds com garantia pública em Portugal. BPF Notícias.

Cassa Depositi e Prestiti (n.d.). Basket Bond. CDP Institutional Page.

Cassa Depositi e Prestiti (n.d.). Basket Bond: innovative finance to help businesses grow. CDP Institutional Page.

BeBeez (2021). Elite e Banca Finint studiano un basket bond per il sud Italia. BeBeez Private Debt.

Jornal Económico (2026). BPF lança 100 milhões nas primeiras Basket Bonds com garantia pública em Portugal. Jornal Económico.

Dinheiro Vivo (2026). BPF lança primeiras Basket Bonds com garantia pública em Portugal: 100 milhões para financiar PME e turismo. Dinheiro Vivo.

Associação Bancaria Italiana (ABI) (n.d.). I basket bond: Nuova opportunità di

finanziamento per le PMI. Documento apresentado ao Senato della Repubblica.