A Standard & Poor's upgrade of Turkey and the attendant ratings lift to the country's leading banks are bound to stir the securitization pot, according to sources. Players had been waiting for this,

as the agency had yet to rate a structured bank deal investment-grade, unlike rival Moody's Investors Service.

Now, with the long-term counterparty credit ratings of three banks upped to BB-', the waiting may be over. "It definitely increases our appetite in Turkey," said Diana Adams, managing director at Ambac, which wrapped a below-investment grade deal for Turkiye Garanti Bankasi (Garanti), but was wary of doing more outside of high grade. Sized at $150 million, that deal had a final maturity of eight years and closed June 24 at 38 basis points over Libor.

XLCA, which had stayed aloof from Turkish banks, also may now edge in. "We're actively exploring some opportunities in Turkey," said XL Senior Managing Director Wynne Morriss, who stressed the guarantor will only wrap investment-grade transactions.

MBIA, which has been active in the country, could not be reached for comment.

In mid August, S&P raised its long-term foreign currency rating on the Republic of Turkey to BB-' from B+', citing macro-economic progress and a strict economic program that the government is expected to pursue beyond 2004. A batch of banks - the country's prime originators - followed suit, with T.C. Ziraat Bankasi (Ziraat), Turkiye Is Bankasi (Isbank) and Kocbank raised to BB-' from B+'. Subsequently, the agency elevated Garanti to B+' from B', with the shadow rating of an MBIA-wrapped credit-card deal issued in 2003 increased to BB+'.

While the underlying rating of the Garanti deal failed to break S&P's investment-grade barrier, players are betting that the top-tier banks will do the honors. As of press time, S&P had not released any underlying public ratings for Turkish banking deals that had become investment grade in light of the corporate upgrades; several transactions in the sector are private, however.

Even when a monoline is open to product that is double-B, a one notch lift to triple-B minus gives guarantor much more breathing room, since the capital charge is dramatically lower for high grade.

With originators able to reach investment-grade at both Moody's and S&P, the prospects have also brightened for unwrapped transactions out of Turkey, sources said. Turkish banks have securitized credit card vouchers and diversified payment rights, which essentially refers to electronic money payments that flow through these entities.

Business as usual after Brazil upgrade

Another giant of the emerging market world, Brazil, has moved up the ratings scale as well, but the impact on structured deals will, on balance, be marginal, sources said. Last week, Moody's raised the sovereign to B1' from B2'.

While the upgrades that might subsequently take place in the corporate world could spur A-list

originators like Petrobras and Companhia Vale do Rio Doce (CVRD) to lean more toward plain vanilla issuance, the general effect on that front will likely be minor, sources said. "There will obviously be a reduction in the risk premium, but I don't think it will be enough to lead many more originators to pick corporate over structured bonds," one banker said.

And on the flipside, a meaningful increase in the number of originators is unlikely as well: "There might some second tier originators that would have a better chance at securitizing...but many still won't have high-enough ratings," another banker said.

Dramatic change for Brazil's securitization industry will only come with further upgrades, sources said. As investment grade comes into reach, the domestic market will likely become more and more attractive to local originators and lead them to stay home for funding. That has been the case with Mexico and Chile, where originators hardly consider the cross-border market anymore.

Copyright 2004 Thomson Media Inc. All Rights Reserved.

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