Fitch Ratings has weighed in on an upcoming credit card-backed transaction from Russia's Rosbank, rating the expected US$150 million, five-year deal B+'. Joint leads Merrill Lynch and Credit Suisse First Boston were roadshowing the notes last week.

The transaction is merely a single rung above the corporate's long-term foreign currency rating of B'. That illustrates Fitch's approach to banking deals in countries that lack a history of government willingness to prop up faltering banks.

"The track record of support for banks in Russia constrains the notching that it is possible to provide when it comes to future flow transactions," said Jennifer O'Neil, an analyst at the agency.

As in any revolving structure, the going concern assessment of the originator often determines the rating in a future flow deal. Going concern assessment addresses the likelihood that an entity would continue to generate receivables in the event of a default. If a government has shown a commitment to rescuing floundering institutions in a particular sector, then originators in that sector will benefit with going concern ratings that are several notches above the corporate credit strength. Turkish banks, for instance, generally earn securitization ratings well above their corporate standing thanks to past sovereign support. As Rosbank demonstrates, Russian banks do not receive the same degree of uplift.

This does not apply across all Russian sectors however. Fitch gave a recent $1.25 billion future flows deal from gas giant Gazprom a BBB-' rating, two notches above the corporate rating. Since default scenarios are markedly different, Fitch's O'Neil said it was difficult to compare the growing concern assessment of banks and exporters. But in general, Gazprom enjoyed a higher notching because there was a stronger argument that it would still be able to export in a state of financial distress.

Moody's Investors Service has rated the Rosbank deal Ba3'.

Collateral is comprised of present and future receivables generated through the processing of international credit card vouchers through the settlement bank JSCB Rosbank. The receivables are linked to VISA, MasterCard and Maestro Regional Licensors.

A limited liability company incorporated under Luxembourg jurisdiction will issue the notes and use the proceeds to extend a loan to Rosbank. The credit card receivables, in turn, secure the loan.

This deal is unlike other credit card transactions out of emerging markets also because two companies are involved in the processing and settling of the vouchers. One, JSC United Card Service, "manages the relationships with the merchants, processes the merchant vouchers and transmits them" to the card companies, Fitch said in a presale report. The other participant, Rosbank, settles the vouchers.

Based on payment flow information between January 2000 and August 2004, the average debt service coverage ratio would be over seven times. Interros, one of Russia's major financial conglomerates, controls 95% of Rosbank.

Copyright 2004 Thomson Media Inc. All Rights Reserved.

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