Turkey and the former Soviet Union republics branched out in new directions during 2006, producing $9.6 billion in ABS and MBS issuance tracked by ASR. While Turkey captured the highest volume, with $5.7 billion in deals, the underlying collateral lacked variety. Originators there tapped only diversified payment rights (DPRs). Russia supplied a more varied array of assets, with originators collateralizing residential mortgages, consumer loans, auto loans, leases and DPRs for a total of $3.4 billion in deals. For Russian mortgages and leases, it was the first time.
"The story of 06 was clearly Russia," said Daniel Mumzhiu, analyst of business development. "The volume of [structured finance] issuance was an 18-fold increase from 2005."
Mortgages have been widely touted as the asset class with the greatest untapped potential in Russia. The country's first RMBS came to fruition in July, with state-owned Vneshtorgbank as the originator, and was followed only a month later by CityMortgage's own deal. Gazprombank followed suit in December, issuing a Fannie Mae-style purchase of collateral from a wide range of originators. While future flow deals from Russia were fewer - they numbered only three - they amounted to nearly $1.4 billion, roughly 40% of total volume. Standing apart from Turkey, all the deals out of Russia last year were unwrapped.
Kazakhstan, meanwhile, came out with $500 million in DPR deals. Apart from a mortgage warehouse facility set up by ABN AMRO for BTA-Ipoteka, a unit of Turan Alem, the existing asset front failed to yield transactions.
Turkish banks provided a reliable supply of DPR transactions last year. "There continued to be a strong rationale on the issuer side to come to the public and private markets," said one banker with a number of future flow deals under his belt. Turkish banks that tapped the market wouldn't be able to pierce the sovereign ceiling - and hence hit investment grade - with unsecured funding. That kept the all-in cost of DPR deals lower, sources said. What's more, maturities on DPR deals went as far as 10 years last year, far surpassing what originators could achieve in the banking market.
The leading monolines - Ambac, Assured, FGIC, FSA, MBIA, Radian - all wrapped DPR product from Turkey last year. Some had insured their first deal from the country only in 2005. Guarantors' hearty appetite helped push deal sizes to new highs. With wraps from no fewer than four monolines, Yapi ve Kredi placed a $1.2 billion DPR transaction in December, the largest non-government bond ever placed from the country. While the DPR spigot remained open throughout the year, no other future flows trickled out of the country last year.
Turkey was also a source of disappointment for some players. Hopes that a mortgage law would pass dwindled as it became clear that the government had other priorities for 2006 and interest rates shot up in May amid market volatility, slowing down origination. Both factors conspired to kill expectations of existing asset deals from Turkey in the latter part of 2006. This year might be a different story.
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