Nudging along the nascent business of Russian future flows, Merrill Lynch led a $225 million, five-year final securitization of credit card receivables last week, the first market-based banking securitization from the country. The originator was Rosbank and demand at the final yield of 9.75% prompted an upsize from an initial $150 million. The pricing was Oct. 26, settlement Nov. 3.

While merely a single rung over the corporate rating, the structure managed to attract buyers that may not have looked at plain paper from the single-B level bank. "Some structured funds bought in that wanted Russian exposure and were probably not comfortable with taking it straight," said Alex von Sponeck, a director of emerging market structured finance at Merrill.

The final book totaled 70 investors from Europe and Asia. As the deal was only Reg S, the U.S. investors that came on board were confined to a few offshore accounts. Collateral is comprised of receivables linked to VISA, MasterCard and Maestro Regional Licensors.

Fitch Ratings and Moody's Investors Service rated the structure B+' and Ba3', respectively. Thanks to structural enhancements like additional collateral and strong amortization triggers, the Moody's rating pierced the local currency rating for the bank. Normally, the local currency standing is a cap on a future flow securitization rating, according to Neal Shah, senior creditor officer at Moody's.

For Fitch, the structure's creditworthiness essentially mirrored the corporate's going concern assessment (see ASR 10/27/04).

The company responsible for processing the credit card vouchers, United Card Services, is separate from Rosbank, which settles the receivables. That arrangement is unusual among emerging market credit card deals, where typically the same bank processes and settles the collateral.

UCS has pledged its shares to the structure. Considering that the company has a track record that effectively stretches back to 1969, that commitment reportedly strengthened the deal.

Since 1992, Rosbank has been the sole settlement bank for UCS, which has a 90% share of the credit card market in Russia. Its virtually monopolistic position in the business means that other originators are highly unlikely to come to market. Alfabank processes roughly 5% and state-owned savings juggernaut Sberbank has 2%.

Rosbank itself may return however, with a coverage level for the structure currently at seven times.

While the credit card deal stands a few notches shy of investment grade and the sovereign rating, sources have noted that securitizations of assets originated by state-owned banks could achieve significantly higher ratings. In a recent report, Fitch Ratings explained how the lack of government support in past crises crimped the ability of private Russian banks to achieve going concern assessments - often analogous to a securitization rating - that stand significantly higher than their corporate ratings. State-owned banks, however, do not have the same problem, the agency noted.

Moody's recently upped loan participation unsecured notes issued by Sberbank to Baa2', citing the crucial role the bank plays in the economy and banking system. That level actually broke through the sovereign ceiling of Baa3'. Fitch has an unsecured rating of BB+' on Sberbank.

Copyright 2004 Thomson Media Inc. All Rights Reserved.

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