On March 23, Kazkommertsbank (KKB) launched a tender offer of up to $175 million for seven tranches of the originator's paper backed by diversified payment rights (see table).

The tender expires March 31 and sets a floor of $820 and a ceiling of $920 for each $1,000 in notes.

What is most striking about the transaction is that the Kazakh bank is making a single offer for notes that arguably have varying levels of quality. The Asian Development Bank (ADB), for instance, wraps the $100 million 2007-C issued via WestLB and Merrill Lynch. Exhibiting none of the nasty credit exposure suffered by the monoline insurers, the ADB has held on to its triple-A status at both Moody's Investors Service and Standard & Poor's, the agencies that rate the KKB deals.

But Ambac, for instance, is in single-A territory, while a wrap from FGIC is worthless from the standpoint of DPR investors.

One banker said the offer should be attractive to a number of investors, but it will naturally depend on the pricing curve they are using and how they value any credit provided by a monoline guarantee.

Merrill officials declined to comment on the tender beyond the public terms.

Apart from the uneven credit quality of the targeted notes, the bank's $175-million ceiling limits it to what amounts to roughly 20% of the outstanding paper, according to a source familiar with the transaction.

One theory for this somewhat coy tender is that KKB is looking to gauge investor interest in keeping its bonds, and thereby see which bondholders could come to the table to re-structure. Moody's ratings requirements have already been breached, which under the program's documents ushers in a stepped-up amortization of principal on the next payment date in June.

"The early amortization events are not immediate since [KKB has] begun to fund a reserve account as a temporary (four-month period) action to cure the breached triggers," S&P said in a report.

KKB's DPR flows have slid 29% from the trailing 12-month quarterly average, according to S&P, which knocked down the notes to 'BB-' with Watch Negative from 'BBB-' with Watch Negative in late March.

"The rapid declines have been caused by the global economic downturn negatively impacting Kazakh-based exports," the agency said. "Given the very high industry and customer concentrations of the Kazakh DPR programs, these have resulted in a steep reduction in DPR flows and DSCR coverage ratios."

BTA: Will Acceleration Happen?

Elsewhere in Kazakhstan, BTA Bank, the nation's largest bank, might end up becoming a test case for the resilience of future flow deals, sources said. Reeling from the effects of the financial crisis, BTA was taken over by the government's Samruk Kazyna National Welfare Fund early this year.

Shouldering $12 billion in foreign debt, the bank has balked at accelerated repayment: "In the event any financial indebtedness of the BTA Group is accelerated prior to its stated maturity, Samruk Kazyna may no longer be prepared to provide such support," BTA said on its Web site.

Support from the fund is seen as critical to averting defaults.

As with KKB, BTA's DPR transactions are facing sped-up amortization after they tripped triggers. As detailed in the transaction documents, amortization could begin as early as June and step up in August.

The bank has $750 million under its DPR program, according to ASR's records.

With outstanding foreign debt of about $12 billion, the bank hired Goldman Sachs and White & Case to lead a restructuring effort. A sharp slowdown in growth has hit many of the bank's customers, while a weaker tenge has increased the cost of servicing dollar debt.

(c) 2009 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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