The region of the ex-Soviet Union, Turkey and Eastern Europe bubbled with cross-border activity in the first half of the year, yielding $4.2 billion in deals tracked by ASR (see table, p. 24). Turkey held its own as the area's wellspring, with $2.5 billion in fresh supply. Elsewhere, a new asset class popped out of Russia, which also drew talk of looming RMBS, an asset class that would debut in the country in the first days of the third quarter.
If this region stole the thunder from Latin America's cross-border securitization in 2005 (ASR, 01/23/06), it graduated to an entirely different league by June. On the cross-border front, Latin America came out with only $400 million of new securitized deals tracked by ASR in the first half of the year (see table, p.25).
Among arrangers, WestLB led the highest volume of deals in the region of the ex-Soviet Union, Turkey, and Eastern Europe. The bank's specialty remained diversified payment rights (DPRs), an asset class that accounted for all the cross-border deals from Turkey and Kazakhstan, though ABN Amro set up a vehicle in February that is warehousing Kazakh mortgages for an eventual issuance of an RMBS.
The other arrangers busy on the Turkish DPR front were ING, Dresdner Kleinwort Wasserstein, Standard Chartered, and Barclays Capital. Merrill Lynch and Dresdner also arranged a five-year, $350 million transaction for Russia's AlfaBank, the first, and so far, the only time, a Russian bank has tapped its DPRs.
The appetite of monoline insurers for Turkish risk was inarguably one of main drivers of issuance in the first half of 2006. Monolines arrived in Turkey in earnest last year - wrapping a total $3.2 billion in public securitizations. Their interest stood firm in the time frame of January through June, with $1.7 billion in wrapped transactions. Most of the names that paid Turkey a visit last year - Ambac, FGIC, FSA, MBIA, and Radian - came back for more; MBIA alone took on $789 million of additional Turkish exposure. And they aren't done yet, according to one monoline source.
"Industry-wide there's definitely some monoline capacity left in Turkey," he said. "Although it's not as bountiful as in December of last year."
What makes the strong volumes from Turkish banks remarkable is the volatility that gripped emerging markets beginning in May. The turbulence was especially intense and relentless in the case of Turkey, with the currency shedding as much as a quarter of its value at its trough and spreads blowing out on unsecured bonds - including those from the same originators issuing DPR transactions.
Yet pricing on the securitized deals that came out during this dramatic re-evaluation of Turkish risk didn't show a hint of trouble. It might have seemed, for instance, that in the testy climate, it was pure bravado for Turkiye Vakiflar Bankasi to double an unwrapped, seven-year tranche to $200 million, but pricing stood firm and in line with pre-turbulence deals.
"Investors and issuers kept their nerve," said one banker involved in the sector. "The market showed quite a bit of maturity on the future flow side."
Indeed, some argue that longer-term jitters might actually propel more issuance than would otherwise take place. "It takes away from all this liquidity we've been seeing," said another banker.
But there is one area of Turkish structured finance where climbing interest rates, driven by sped-up inflation and a weaker currency, were, and remain, unquestionably a problem. Existing onshore assets, notably mortgages, were a hot topic in the first half of the year, with Merrill reportedly working on an RMBS for Finansbank and other asset classes, such as consume loans, auto loans, and leases, also on the lips of arrangers. But in the new environment, the buzz has gone silent.
"The way that rates have kicked in no one's sure where things will settle," said one banker. And it is only when they settle that Turkish originators can begin to securitize their onshore assets, he added.
In Russia, on the other hand, existing onshore assets have already proven themselves. The two deals in this arena that closed in the first half of the year were respectively backed by consumer loans and leases related to railway stock. Including the DPR deal from AlfaBank, each of the three Russian deals closed during the period tapped a different currency: dollars, euros, and rubles.
Meanwhile, the Latin American cross-border market was as quiet as a mouse. The factors that took the wind out of the region's sails last year - high commodity prices, cheap unsecured financing - were still very much in evidence. Brazil, normally accounting for appreciable volumes, produced only a single new deal: a $200 million DPR deal from HSBC Bank Brasil - Banco Multiplo.
Even the turbulence that rattled the markets in the second quarter and stretched out unsecured spreads did nothing to push Latin American originators into the arms of the ABS bankers, according to sources. "Volatility hasn't changed the underlying situation," said one banker with experience in the region. He added that even if unsecured funding became uncomfortably expensive for traditional cross-border issuers of securitization, many, such as Brazilian commodity exporters, have light funding needs thanks to heavy revenue flows.
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