In a move that must have delighted boosters of Russian ABS, Standard & Poor's last week upgraded the class A notes of a Russian leasing deal to BBB+' after it did the same to the long-term corporate rating of the transaction's lessee, Russian Railways. Dubbed Red Arrow International Leasing, the transaction consists of a six-year final, RUR12.6 billion ($475 million) senior tranche initially rated BBB-'.

Moody's Investors Service rated the deal Baa2' at issuance, a grade that remains the same and has consistently been two rungs below the agency's local currency rating on the Railways, A3'. Morgan Stanley and CIT Finance Investment Bank led the deal, which included unrated subordinated notes for a total RUR46.7 billion.

S&P's move was prompted by its new assessment of the Russian government's relationship with specified companies. The higher ratings reflect "increased probability that the Russian government will support the company in case of financial distress," the agency said in a release. Russian Railways is a state-owned company and the country's railway monopoly.

When it closed, Red Arrow was touted as the first securitization of lease receivables from Russia. A second deal in the asset class has yet to come to market, according to ASR's records.

Elsewhere in the region, Ukraine Mortgage Loan Finance, the first RMBS from that country, is slated to price early this week. Privatbank is the deal's originator; UBS is the arranger (ASR, 2/5/06).

Bankers active in emerging market ABS in general, and Russia in particular, are watching this deal, said one banker with existing asset experience. But he believes the deal won't be so easily replicable for other Ukrainian originators. "Privatbank is the country's biggest bank," the source said. The bank had a loan portfolio totaling $3.9 billion as of July 1, 2006, according to Privatbank's Web site. Aval sits at the next rung, with $3.4 billion in loans, followed by Prominvestbank, with $2.6 billion.

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

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