An originator in the Czech Republic has closed a deal backed by payment cards, an asset that is mass marketed in Eastern Europe and Russia, according to sources close to the deal. Home Credit, a leading provider of consumer credit in the country, closed a CZK4.79 billion ($214 million) deal on June 2, with a senior tranche of CZK4.14 billion dropped into a conduit of structurer and lead manager HVB, a source said. Pricing on that piece came to 80 basis points over one month Pribor (Prague Interbank Offered Rate). A pair of investors bought the subordinated piece totaling CZK645 million at 190 basis points over one month Pribor, which was managed by Czech bank PPF banka.
Both PPF banka and Home Credit belong to the PPF group, a major financial conglomerate in Central Eastern Europe. Moody's Investors Service and Standard & Poor's rated the senior notes A2' and A,' respectively. Moody's gave the subordinated piece Baa2.' The structure has a full substitution period to April 30, 2009, when a bullet redemption is expected at the call date. The legal final maturity is April 30, 2015.
While this is the first publicly listed true sale ABS out of the Czech Republic, Home Credit is not new to the business. In fact, the bank is using the proceeds to refinance an existing deal backed by payment cards that closed in September 2003. The current deal is more efficiently structured, according to sources. The advance rate - the funding secured by Home Credit as a percentage of the collateral value - jumps to the upper 80s in the current transaction from the low 70s in the prior one.
"The overall efficiency of the transaction and the capital structure have further improved compared to the original deal," said Home Credit's Chairman of the Board Milos Stibor, in a release posted on the company's Web site.
With the consent of investors, the transaction size can be upped to CZK5 billion for the A notes and CZK779 million for the B notes.
Payment cards are similar to debit cards. They can be used at ATMs and in specified retail stores. In the case of Home Credit's cards, users have to repay 4% of the credit limit each month, but, as with a credit card, can, and typically, pay more. "It's an easier way for [lenders] to manage exposure to borrowers' credit risk," said a source close to the deal. "The contract in a payment card is between borrower and seller, not borrower and lender."
Home Credit funded client purchases worth CZK6.7 billion in 2005. In 2000, the company began providing revolving loans through its card brands "YES" and "CP".
The buzz is that other payment card-backed deals from the region are in the works.
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