Russian existing assets are starting to fulfill their promise, with the country's first public consumer-loan deal already wending its way through Europe on a road show. Originated by Russian Standard Bank, the transaction is sized at 300 million and consists of three tranches. HVB, which pioneered the asset class in the non-public realm, is sole arranger and also joint lead along with Barclays Capital and JPMorgan Securities, according to a source on the deal.
Moody's Investors Service and Standard & Poor's rated the 228 million ($271 million) senior A-1 tranche Baa2' and BBB'; the 39.3 million A-2 tranche Ba2' and BB-'; and the 32.4 million B tranche also Ba2' and BB-', respectively. All the pieces have a final maturity of six years and a scheduled maturity of three years.
The road show kicked off in London March 9, and moved on to the continent this week. Pricing is expected at the end of March.
In the initial pool, the average loan has a seasoning of 4.6 months and matures in six months. To be eligible, loans must have a maturity of no longer than nine months from the moment they're sold to the issuing vehicle. The starting volume of collateral exceeds RUB12.7 billion ($452 million). The interest rate on the loans averages over 20%.
The pool covers a broad geographic expanse. The heaviest concentrations are in Moscow, which accounts for 15.71% of the collateral; Ekaterinaburg, with 11.6%; Novosibirsk, with 10.2%; and Rostov, with 7.5%. RSB's strategy of expanding into the underserved regions has served it well in growing quickly, but it has also pushed up non-performing loans, given the lower income of the provinces, according to a Moody's report.
As the underlying loans are denominated in rubles and the bond is denominated in euros, HVB is providing a hedge to mitigate currency risk. The facility consists of a program of rolling spot forward FX trades, amounting to one-tenth of the total amount of notes.
"This hedging program is innovative as rolling spot-forwards are more typically seen in CP conduits than in term securitizations," said Patricia Perez, a credit analyst in S&P's structured finance group.
HVB is also providing a second facility of ruble interest-rate swaps.
Another enhancement is the subordinated loan facility used to purchase additional assets, which is about 7.8% of issuance, according to Perez. But the issuing vehicle also keeps 3.35% of note proceeds on hand, bringing the total overcollateralization to about 4.45%.
Payment methods for RSB's borrowers are somewhat archaic by Western standards.
"The majority, about 70%, send their payments through the post office," Perez said.
Another 25% pay at RSB branches. The remaining 5% pay through partner banks.
Moody's rates RSB's servicer quality rating SQ3+.' While RSB is based in Russia, Moody's assigns its SQ ratings on a pan-European basis. The rating is comparable with other SQ ratings assigned to Western European servicers. S&P does not have a servicer rating on RSB.
Vneshtorgbank Retail Financial Services is the backup servicer for the transaction.
As with other structured deals in Russia, legal questions hang over Russian consumer finance. Some of the basic tenets of securitization remain untested in Russian courts, where experience in the field is scant. The transaction has a true sale opinion from Clifford Chance, with the SPV incorporated under the laws of Luxembourg and English law governing the sales agreement.
Consumer lending in Russia is still relatively virgin terrain, representing 3.7% of GDP at the end of 2005, a negligible share of the economy compared with 19% in Poland or 49% in the Eurozone.
RSB posted 161% year-on-year retail sales growth in 2005, according to Moody's. The bank was the first with a consumer credit focus to enter the Russian market.
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