Rabobank has got together with the International Finance Corp. (IFC), the World Bank's private lending arm, to launch what the bank says is the first securitization of onshore Turkish assets and the first true securitization to make use of the IFC's preferred creditor status.

The $43 million equipment lease backed-deal for Garanti Leasing, an affiliate of Garanti Bank, securitizes the "B" portion of a $50 million loan made by the IFC to Garanti Leasing (the IFC retains the $7 million "A" loan).

Because the deal is structured with the IFC as the lender of record, the agency's preferred creditor status enables it to be rated well above Turkey's foreign currency ceiling at Baa2 by Moody's Investors Service and BBB by Duff & Phelps Credit Rating Co.

This is because preferred creditor status mitigates currency, convertibility and transfer risk as the Turkish government is unlikely to take any steps that would make it difficult for any Turkish entity to meet foreign currency obligations to any of the multilateral agencies.

The loan from IFC to Garanti Leasing is unusual because it is only repayable from cashflows generated by the underlying portfolio of equipment leases, explained Charles Gundy, a director in Rabobank's securitization group. Also, as a protection for investors in the event of Garanti Leasing's insolvency, the lease portfolio is transferred to the IFC under a true sale assignment.

According to a Moody's transaction report, the deal takes place against a background of rising delinquencies in Garanti Leasing's general lease portfolio, thanks to the downturn in emerging markets, in particular the troubles that have affected Russia since September 1998. The company has also been hit by a downturn in Turkey itself and by the affects of the recent earthquakes.

However, Moody's noted that while this makes for difficulties in analyzing the transaction, the fact that the 164 leases that back the deal are cherry-picked from the company's general lease portfolio mitigates the performance risk. Indeed, Rabobank view the fact that the selected leases have emerged unscathed from this difficult period as a positive fact.

The deal, which also features a 4% offshore cash reserve and 24% over-collateralization, is divided into three senior tranches: a E15.5 million floater with an average life of 1.5 years, a E19.5 million fixed rate piece with a one-year average life and a $8 million fixed rate chunk with a 0.6 year average life. All three tranches mature in May 2004 and were issued at par. The coupons are one-month Euribor plus 400 basis points, 7.875%, and 10.375% respectively.

The different currencies and the mixture between fixed and floating rate tranches reflects the make-up of the lease portfolio, which is divided into sub pools, one backed by floating rate deutschemarks, one by fixed rate deutschemarks and one in fixed rate dollars. The average lives of the bonds also reflect the average lives of the leases in each sub-pool.

"Each different tranche is related to the different sub-pools of the lease portfolio," said Gundy. "So if all the sub-pools perform immaculately then the cashflows from each will be used to repay the respective tranche.

"But if one of the pools perform badly, while the other performs well, there is a cross collateralization provision to take cashflows from the well performing pools, convert them as necessary at the spot rate, and use those proceeds to pay through to the investor on the poorly performing tranche."

Rabobank, the IFC and Moody's all made a point of stressing that thanks to the mitigation of country risk the deal template is applicable not just to similar deals from Turkey, but to many other emerging market countries.

The IFC has staffed up its Washington D.C.-based securitization practice under Arun Sharma and is working on at least one deal in South Korea and examining others in several jurisdictions.

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