After taking a dip to triple-B-minus, the Trade Payment Rights PLC deal from Turkey may be on the road again to securing its prior status. Recently Fitch placed the transaction on ratings watch evolving following the announcement that Ottoman Bank, the originator, is to merge with Garanti Bank (see ASR 8/20/01).

The deal recently suffered a one-notch downgrade after having weathered two previous Turkish sovereign and local credit downgrades. While the action was largely considered a mild reaction to the developing situation in Turkey, it did address the vulnerability TPR plc has to its originator. Over a period of nine months the sovereign and local credit took a dive to a single-B and single-B-minus status, respectively, which was ultimately expected to adversely affect the banking sector.

In August, when action was taken against several structured transactions that included TPR plc, analysts at Fitch said the action reflected "a need to bring the rating more in line with the going concern assessment," and bridge the seven-notch gap between the sovereign rating and the transaction rating. However, the agency expected the impending merger between the originating bank and Garanti Bank to positively affect the situation.

As a result, the trustee, Bank of New York, has requested investors' consent to waive any early amortization events. Since the outcome of not complying would result in early amortization as a direct result of the merger, industry participants largely expect that the buyside will comply. Adrian Dommisse, an analyst at Fitch, explained: "It seems to be the obvious thing for investors to do, especially in light of the probable amortization of the transaction in any event if the consents are not obtained."

If investors consent to waive EA events, Bank of New York additionally requests that the final repayment date be modified to December 10, 2001 from December 10, 2006, which limits the originator's exposure to the deteriorating Turkish credit. Fitch's Dommisse said: "As for the exposure of the deal to the sovereign rating, if the consents are obtained and it begins to be paid down, the deal's dependency on the sovereign rating will now be regarded in the light of the exposure of the investors over the much reduced timeframe."

The waiver would only deter investors from seeking early amortization; however, it would not shield the transaction from the originator defaulting on payment, which would propagate early amortization events. "Garanti Bank has undertaken to make up any shortfall of funds under either redemption upon consent on December 10, 2001 or upon any early amortization even," said Fitch.

Nonetheless, sources familiar with the deal said it is still somewhat of a sensitive issue and will require further analyzing of the Turkish situation. "We can't comment on the investor's attitude to this consent," added Dommisse. "That attitude will be defined by the role which this investment plays in the individual investor's portfolios."

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