Russia's Alfa Bank is on tour again with a euro/dollar deal backed by diversified payment rights (DPRs). Dresdner Kleinwort Wasserstein and Merrill Lynch are joint leads, reprising their roles from the last DPR paper from Alfa in December. The deal now in the market consists of a euro and a dollar tranche. Each will be sized at between $300 million and $500 million in dollars or euros. The legal final is five years, the average life, 3.12 years.

Going unwrapped, the transaction is entering a European structured market where spreads have held steady in the teeth of turbulence. The deal's pricing could hinge on the degree to which investors see it as an ABS play or as emerging market paper. The former approach would probably put less pressure on the spreads than the latter one. The deal is also being sold in the U.S. market as a 144A.

Moody's Investors Service and Standard & Poor's have both rated the deal on the cusp of investment grade: Baa3' and BBB-', respectively. While Moody's has also rated prior DPR deals from Alfa and one from MDM, S&P is a newcomer to this asset class in Russia.

"With the upgrade of Alfa bank's foreign and local currency to BB' in December, we could lift them to BBB-' for a transaction rating," said Gary Kochubka, director of emerging market structured finance ratings at S&P. Before December, an Alfa DPR wouldn't have reached investment grade by S&P.

Neither Moody's nor S&P rated Alfa's latest DPR over, or even at, their respective sovereign ceilings for Russia of Baa2' and BBB+'. As a smaller private bank, the chance that Alfa would be rescued by the government when in trouble isn't as high as it is for much larger state-controlled Vneshtorgbank and Sberbank, said Kochubka. Also, S&P rates the underlying credit rating of Alfa a few notches below the government. It would need a substantive five-notch uplift to pierce the ceiling.

In contrast, Turkish DPRs typically stand above the sovereign, which in the case of Turkey is below investment grade at both Moody's and S&P. The main reason for this is that, at least at S&P, the major Turkish banks and the sovereign are closer in ratings.

The transaction's collateral consists of payment orders made through Alfa as a product of international financial operations, such as export finance. Worker remittances and foreign direct investments often account for a large share of DPRs flowing through an emerging market bank, but in Alfa's case those components are negligible.

Flows fall under one of two categories: Russian and non-Russian. The former are domestically generated payment orders for clearing foreign currency operations that occur offshore but take place between Russian banks. The non-Russian flows are initiated offshore. Mirroring its practice with Turkish DPR transactions, S&P excludes Russian flows in determining whether the debt-service coverage (DSC) meets the structure's requirements.

In 2006, total DPR flows at Alfa reached $16 billion, with the non-Russian component totaling $11 billion.

Elsewhere in the region of Emerging Europe and Western Asia, Turkiye Is Bankasi has apparently priced a $550 million DPR transaction, confirming rumors that such a deal had been in the works (ASR, 2/26/07).

ABN AMRO was sole lead on a seven-year final, 5.2-year average $150 million tranche, while Citigroup led a $400 million piece with the same maturity, according to a market source. Pricing was unavailable as of press time, even though the transaction settled March 13, according to Bloomberg.

The Citigroup chunk was understood to have been dropped into a conduit, unrated. S&P rated the ABN piece BBB-'. The transaction came off a program that has so far yielded at least $2.65 billion in issuance, according to S&P.

(c) 2007 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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