More details have surfaced on Russia's most recent RMBS, the second to be issued publicly. Originated by CityMortgage, a $64.3 million, 28-year legal final A-floater piece priced at 160 basis points over one month Libor, while a $6.4 million B tranche with the same final priced to yield 9.25%. Moody's Investors Service rated the A tranche Baa2' and the B piece B1'. The average lives were three- and 7.5 years, respectively. Closing was on August 10.
Joint leads Greenwich Financial Services and MNB Capital Markets also teamed up last year in an auto loan transaction for Bank Soyuz, a deal that established the structural model for the CityMortgage deal.
Both deals feature an inverse floater that concentrates all the prepayment risk. Whereas in the Soyuz transaction, the inverse floater had a nominal size, in the CityMortgage RMBS it had no principal, though its spread of 765 basis points below one month Libor is on the notional principal of the A-floater.
The Overseas Private Investment Corporation purchased the B notes, according to a press release. The originator swallowed a Z piece worth $3.2 million and bearing an undisclosed spread. The RZB Group was co-manager on the deal.
As the transaction was both Reg S- and 144A-registered, U.S. and European investors alike bought into the A-floater tranche. "A significant portion went to the 144A buyers," said a source close to the deal. This was the first time onshore U.S. investors could purchase a Russian RMBS. The inverse floater is typically bought as a play on interest rates by a hedge fund or other sophisticated investor, the source said, declining to comment specifically on this tranche of the CityMortgage RMBS.
Fitch upgrades VTB's RMBS
Meanwhile, Fitch Ratings gave aficionados of Russian existing assets cause for optimism. The agency upgraded to A-' from BBB+' the $72.2 million A piece of a 28-day final RMBS issued by Vneshtorgbank (VTB), the country's first. The $10.6 million B notes and $3.5 million C notes were both affirmed at BBB' and BB-', respectively.
The upgrade came after the agency boosted the unsecured foreign currency rating of the originator, to BBB+' from BBB', which was triggered by an increase in the Russian Federation's sovereign rating to BBB+' from BBB'. The new rating on VTB deal addresses the fact that, while the underlying collateral is in dollars, the mortgage borrowers themselves earn in rubles.
"A devaluation of the US dollar/Russian ruble exchange rate would disadvantage these borrowers and could lead to higher levels of payment delinquency on the mortgage portfolio," the agency said. "The initial exchange rate stresses that were factored into the credit analysis were set at the sovereign issuer default rating, so these have now been amended slightly to reflect the sovereign upgrade."
Moody's addresses Russian mortgages
Russian mortgages also inspired analysts at rival Moody's, which issued a mortgage-laden issue of its periodical Inside Russia and the CIS: Structured Finance Today. The agency pointed out that Russia's mortgage market has doubled in size every year since 2002, reaching $2.8 billion in the first quarter of 2006. "Higher disposable incomes, coupled with increasing development and availability of mortgage loan products have boosted demand for real estate in Russia," said the issue's authors.
Some 63% of Russian mortgage stock is in dollars, a nice fit for a dollar-denominated RMBS, but a potential cause of anxiety for ruble-earning borrowers. As with the consumer finance sector (see cover story), the exceedingly low ratio of mortgage loans to Russian GDP offers huge scope for growth. The mortgage market totaled 1.4% of GDP in March 2006, as compared to 7.6% in a country like the Czech Republic and 72.5% in the U.K.
While legal obstacles and a short history of origination remain bottlenecks to vigorous RMBS growth, Moody's sounded an optimistic note on the sector, not least because of institutionalized support. President Vladimir Putin announced in May that his government sought to cut mortgage rates over the course of two years and triple mortgage loans to nearly RUR260 billion ($9.7 billion), the agency said. If successful, the plan would certainly provide more fodder for RMBS.
Staying true to the CIS in the issue's title, Moody's also made a mention of mortgages in Kazakhstan. Some estimates put the total stock in that country at between $2.0 billion and $2.5 billion, with average LTVs of 70%, the agency said.
Kazakhstan hasn't produced an RMBS yet, though ABN Amro set up a vehicle in February to warehouse mortgages for an eventual bond issue.
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