Arranger Unicredit Aton International hopes the anxiety of Western European investors will ease soon enough for them to consider a slice of a short-term cash CLO of Russian SMEs that closed at the end of December. "We are holding a small piece on a repo basis," said Dmitry Kozodoy, director of Aton's securitization department.

Kozodoy said the repo'd slice amounts to between a fourth and a third of the RUR2.3 billion ($94 million) senior tranche, which has a six-month expected maturity and an annual coupon of 10%.

Touted as the first of its kind, the deal was structured to suit the tastes of Western European investors open to ruble exposure. But when it turned out that the market lock-down would stretch beyond a few months, the arranger decided to close on Dec. 24, with the paper going to Russian investors.

"The timing of the closing was absolutely devastating," Kozodoy said, adding that distribution in the West was out of the question at that time. But the short tenor gives the arranger precious little time to attract Western buyers. Piquing foreign interest would be a way to generate interest for a follow-up transaction, according to Kozodoy.

Buoying the senior piece - which Moody's Investors Service rated Baa1' - is a chunky subordinated tranche totaling RUR1.6 billion and retained by the originator.

The collateral consists of 23 loans that Moscow Mortgage Bank (MMB) has lent to 21 Russian SMEs in the Moscow region, an area that rings the city of Moscow. Several dozen municipalities in the region act to guarantee the loans. All the loans are one-year and bear a 13.5% yield. The deal has been executed under a program that "provides local municipalities in the [Moscow region] with financial support to fund their annual maintenance of public utilities and the modernization of their infrastructure," according to a Moody's report. Under this program, MMB extends short-term ruble loans to SME contractors, most of which are unrated. The municipal administrations that work with the SMEs provide guarantees on the loans.

The notes are issued under the TransAlp Structured Note Program sponsored by Bayerische Hypo- un Vereinsbank. The issue's proceeds funded a senior loan and a subordinated one by the issuer to Belior, a bankruptcy-remote SPV governed by Cypriot law. Using the jurisdiction of this Mediterranean island instead of more tested regimes such as Ireland or Luxembourg was a way to cut costs, Kozodoy said.

"[When] you do something unusual and esoteric, it's always useful to save on things that aren't necessary," Kozodoy said, alluding to the fact that the tax burden on financial vehicles is relatively low in Cyprus. Once the program has more than one issue, then using a more established jurisdiction could be warranted, he added.

The arranger launched operations in August 2006 as a unit of Aton Investment Group. A year later it was bought by UniCredit Group and joined the concern's markets and investment banking division.

(c) 2008 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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