Having proved their worth in 2003, Turkish structured deals are poised for a receptive market in the year ahead, as long as geopolitical tremors don't fly off the charts, sources said. Cheaper financing for emerging market issuers, investors longing for a Brazil alternative and positive ratings action are sure to feed an appetite for Turkey. "There's a comfort level because [Turkish deals] have done well through a lot of geopolitical turbulence," said Kevin Kime, a director at Standard & Poor's. That, sources said, has furnished the backdrop for a pickup in activity in 2004.

So far this year, WestLB has closed a US$150 million deal backed by debit and credit card receivables for Turkiye Is Bankasi (Isbank). Moody's Investors Service rated the deal Baa2'.

Other banks that have engaged the sector are Turkiye Vakiflar Bankasi (Vakifbank), Akbank, Garantibank, Kocbank and Finansbank. The country has not yielded cross-border structured transactions outside of the banking sector.

A number of deals are maturing this year and next, fueling talk that the usual suspects will re-tap existing programs or open new ones. Newcomers are on the horizon as well. "It looks like some other Turkish banks might be able to reach investment grade for securitization purposes," said a New York-based banker.

Potential upgrades by S&P might also open the door for monolines other than MBIA to move in. "Ambac has always had an interest in Turkey," said Diana Adams, managing director of emerging markets at the global guarantor. "The real constraint has been non-investment grade ratings from S&P," which, she added, have traditionally been a prerequisite for Ambac's involvement.

While Adams doesn't rule out eventually wrapping a split-rated deal that included non-investment grade from S&P, the insurer may not need to bend its rule after all to purchase Turkish exposure. Two weeks ago, S&P upgraded Turkey's local currency rating to BB-' from B+', which some took as a harbinger of structured upgrades. Indeed, S&P's Kime said that at least a couple of Turkish bank deals might soon cross the investment-grade threshold.

All the same, most Turkish structured deals have come unwrapped, which, going forward, would suit yield-hungry EM investors that have been turning up their noses at the ever tightening product from Brazil and the like, sources said.

Apart from WestLB, Standard Chartered and Deutsche Securities are among the banks that have underwritten Turkish deals. A nudge upward in activity, combined with fewer opportunities elsewhere in cross-border emerging markets, could pull in more players. This applies to those who have been most active in Brazil, which is unlikely to regain the brisk momentum of last year's third quarter.

Merrill Lynch, for one, hired a dedicated banker for Turkey, Alex Von Sponeck, just last November, according to sources. The bank is understood to have a mandate from Finansbank for a subordinated debt deal backed by political risk insurance (PRI), due out later this year.

Other banks are eyeing the market as well, some hoping that WestLB might not be able to compete as aggressively going forward when it loses its government guarantees. The German government is phasing out guarantees for all Landesbanks, and S&P has warned of a potential drop in their short-term ratings. Among other things, that could boost the cost of conduit funding for WestLB. A source familiar with the bank said that a very small portion of EM paper - Turkey included - ends up in the bank's conduits and the underwriting approach to deals in the country would be unaffected. Typically, WestLB does not hold these transactions on its books for more than a few weeks as it syndicates them out to bond investors, so liquidity is not an issue, a source said. Still, leading players see an opportunity. "I think it will make them more cautious in underwriting deals," said a Frankfurt-based banker. "And that includes emerging markets."

Still, it's clear that WestLB has not yet slowed down in Turkey. As the leading player, it has executed US$775 million in Turkish securitizations since September alone. To date, the bank has closed some US$3 billion in the sector.

While both the diversified payment rights and credit card sectors have weathered a string of crises since 1998, the former has held up better, according to a recent report by Fitch Ratings. Last year for instance, the war in neighboring Iraq slammed card deals harder than DPR paper. Still, the injuries were not sustained in either asset class.

In the card sector, a rebound in tourism in time for the high season in summer, on top of resilient coverage ratios, helped the three Fitch-rated deals shrug off the conflict. None of the transactions came close to early amortization triggers, the agency noted.

For DPR deals, disruption from the Iraq war ended up as merely a wrinkle in a long-term upward trend in flows. Fitch noted that all deals in that asset class held above 20x DSCR, the multiple by which periodic cash flows cover the maximum periodic obligation over the deal's remaining life. Strong export performance offset the negative blip in tourism revenue sparked by the conflict.

In September, Fitch upgraded the sovereign to B' positive outlook, after cutting it to B-' in March. Structured deals have consistently stood several rungs above the sovereign.

While bankers are going for choice opportunities in the Turkish banking sector, other asset classes don't have much to offer. This contrasts with peer sovereign Brazil, where exporters stand side-by-side with banks as leading originators. In Turkey, beyond the financial sector, either corporates lack the underlying strength to issue abroad or they can procure cheaper funding from a foreign parent, sources said. Still, there may be at least one deal in the medium term outside the usual DPR and credit card classes. Though the plan currently looks shaky, Garantibank is said to be looking into an equipment lease program, a source said.

One thing that Turkish issuers will continue to share with their Brazilian counterparts is their partiality to dollars. Despite their proximity to Europe and tight relationships with European banks, Turkish banks are expected to continue issuing in the dollar market. Even though the euro portion is rising, sources said most of the underlying flows remain in greenbacks.


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