In the past few quarters Russia has raced past one milestone in structured finance after another. The most recent is a ruble-denominated RMBS. Arranged by Gazprombank and backed by a geographically diverse pool, the RUR3 billion ($113 million) deal is to be sold to brokerage Commerce Investments, which will parcel it out to investors. The transaction carries a 30-year legal final and Baa2' from Moody's Investors Service. It is timed to price sometime next month.

While new to Russian RMBS, a local-currency denominated structured deal has already been done in the broader existing asset marketplace. A variety of rail stock leasing companies originated a RUR13.8 billion transaction that came out in March.

But Gazprombank's transaction is unorthodox in another, perhaps more far-reaching way. In a remarkable departure from other Russian existing asset transactions, domestic law governs every aspect of the transaction. "We had extensive discussion on the legal front," Oscar Heemskerk, Moody's assistant vice-president, said. "We realize that a lot of this hasn't been tested." The rating, he added, is commensurate with the degree of legal uncertainty facing the transaction.

A federal law on mortgage securities is the main legislation governing the transfer of mortgage certificates to the trust and other transaction documents. Mortgage certificates were created in 1998 to ease the transfer of mortgage receivables and the securitization of loans.

Legal counsel came from Allen & Overy, which advised on a dollar-denominated RMBS from CityMortgages that priced in August.

The seller in the structure, Gazprombank unit Sovfintrade, purchased the collateralized mortgage certificates from a variety of local regional banks and non-bank entities. As such, the loans are broadly spread throughout the Russian Federation, another difference from the RMBS that have come out of the country so far. The regions that are disproportionately represented include Bashkortostan, which accounts for 36.5%, and Vologda, equal to 11.14%. All the other regions are in the single digits. Previous deals had focused more on the Moscow and St. Petersburg areas, where a higher share of mortgages are denominated in dollars.

The underlying pool consists of 6,015 ruble loans, with a current LTV of 57.68%, deemed to be one of the transaction's strengths. The weighted average interest rate is 13.84%, with none reset until maturity. The high rate should ensure a steep excess spread, according to the Moody's report.

While standardization of Russian loans hasn't reached the degree of sophistication it has in the U.S., Sovfintrade only purchased loans that met specified criteria. "The regional operators are involved in the servicing as well," Heemskerk said.

(c) 2006 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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