South Africa's FirstRand Bank recently brought to market the country's first international securitization. Called FirstRand 2000-A Receivables Trust, the $250 million deal is backed by future Visa, MasterCard and Cirrus vouchers generated by foreign visitors to South Africa in establishments that use FirstRand to service card receipts.

Credit Suisse First Boston's European team acted as lead manager on the transaction and also acted in an advisory capacity alongside the South African investment bank, Rand Merchant Bank.

FirstRand has the largest share of any South African bank in the credit card business and in 1999 processed $325 million of Visa, MasterCard and Cirrus receivables.

The deal is split into two $125 million floating rate tranches, one of which reaches maturity in 2004, the other in 2007. Moody's Investors Service, Standard & Poor's and Fitch IBCA have provisionally given triple-A ratings to both notes, thanks to a wrap from AMBAC Assurance Corp.

The underlying deal, ignoring the wrap, was rated A3 by Moody's (above the sovereign ceiling of Baa3) and BBB by S&P (sovereign rating of BBB-minus) and BBB by Fitch (sovereign rating of BB-plus).

The bonds with the shorter maturity priced at 34 basis points over three-month Libor. The spread on the longer-dated notes was 38 over.

Credit enhancement for the issue takes the form of a cash reserve account, which is the liability of FirstRand, plus a fund built up from excess cash flows.

According to the rating agencies and CFSB, the underlying deal was able to break the sovereign ceiling because the receivables generated become the obligation of the credit card companies in the U.S. at the time payments are made in South Africa. "The reason we got a higher rating is because the flows never go back to South Africa: they are paid directly from Visa and the others into the SPV," explained a securitization official at CSFB. "Due to the fact that we trapped the cashflows offshore, there will be no problems in the event of FirstRand defaulting."

Because the deal is backed by future receivables, the rating agencies took into account the historical evidence that indicates strong growth in South African tourism, in terms of the volume of people coming into the country and increased revenue. The number of foreign visitors increased from 738,000 to 1,434,000 between 1994 and 1999, while their consumption rose from $3.6 billion to $5.5 billion in the same period.

According to the CSFB official, the deal increased in size due to investor appetite. "We went to market originally with a $200 million transaction," he said. "But due to the high level of investor interest, we had to increase the size. It was oversubscribed for both tranches by a substantial margin."

The official added that the majority of investors were European, and that there was a fairly even split between those who wanted the short-dated bonds and those interested in the long-dated tranche.

The fact that FirstRand 2000-A was the first international issue to come out of South Africa presented CSFB with a few problems. "It was the first deal, and they are never easy. As a first time transaction, we had to get the legal advisors in South Africa to understand the structure we were trying to use," he said. "Although I wouldn't say that this was a long exercise, there was more work than would have been the case if they had done more of these deals before."

The official believes that the growth in South Africa's tourism sector could result in other banks securitizing credit card receivables. "Banks have a very interesting opportunity with this because they have a lot of flows from the tremendous increase in the number of people going to South Africa. FirstRand has been able to access the international capital markets and there are probably two or three banks in South Africa with the ability to do this sort of exercise."

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