Turkish banks have been quiet on the securitization front since most of the monoline bond insurers stopped wrapping structured deals.
On the sidelines of Global ABS, held at Cannes last week, officials at two Turkish banks said that the multilateral institutions are likely to step in soon to partly make up for the loss of business from the guarantors, which helped spur a boom in deals backed by diversified payment rights (DPRs) in 2006 and early 2007.
German development bank KfW Bankengruppe, European Investment Bank and the FMO are all talking to Turkish originators about supporting DPR placements, and their efforts are expected to bear fruit in the short term. "This is the year where you'll see multilateral funding of DPRs," one Turkish source said. "European multilaterals can offer funding below the market."
Meanwhile, Turkish banks are trying to decide what to do with DPR transactions wrapped by the likes of CIFG and FGIC, whose wraps are now rated below the underlying rating of the deals and therefore hold no value for the originators. The problem is the originators have to keep paying the premiums to these guarantors. One straightforward solution is to buy back the transaction, but the current funding environment makes that uneconomical unless current bondholders were willing to sell it back at the original cost, one Turkish banking official said.
Under this option - which is on the table in the case of at least one originator - the bank would strip off the wrap and then re-issue the deal back to the prior holders at its initial all-in cost.
But even this alternative wasn't available to all originators. Another Turkish source said there are programs in which series have to be bought back in the order in which they were issued off a program.
That means that if a CIFG-wrapped bond is the tenth series, the originator could entertain a repurchase only if the first nine series were bought back first. In these cases, a repurchase of the troubled wrapped bonds would be uneconomical under almost any circumstance.
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