In what is being widely viewed as a vindication of the DPR product, stressed programs originated by Kazkommertsbank and BTA Bank have fully paid down.

"It shows that the structure works in a highly distressed scenario," said a market source that has done business in Kazakhstan.

Apart from an April tender that KKB completed, the banks didn't actively re-purchase the bonds; the payment accelerations that had kicked in with tripped triggers repaid the notes, according to Gary Kochubka, senior director at Standard & Poor's, which rated all the DPR-backed transactions from both banks.

KKB announced on its Web site June 12 that $850.4 million in outstanding DPR notes had been redeemed. The company had previously tendered $99.6 million in DPR paper.

"Acting as originator, KKB requested that the controlling parties (Ambac Assurance Corp., MBIA Insurance Corp., Financial Guaranty Insurance Co., the Asian Development Bank (ADB) and WestLB) terminate the program," the Web site said.

The bonds started to pay down at twice the normal rate after they breached a ratings trigger based on the grade from Moody's Investors Service. A mechanism that traps flows at up to 15x the debt service was also set to kick in this month.

In the case of BTA, the payment schedule had converted from a monthly schedule to every two weeks a few months ago.

DPR bonds from Alliance Bank, meanwhile, appear to still be in serious trouble. The bank's CEO said on May 29 that the DPR bonds could be part of a restructuring. Meanwhile, Fitch had downgraded paper in the program to 'CC', apart from a 2007-A series wrapped by the ADB (see ASR, June 2009).

Merrill Lynch arranged the 2007-A tranche and jointly arranged another two bonds in the Alliance program with HSBC.

Merrill declined to comment on the status of Alliance's DPR bonds. Neither a spokesperson for Alliance nor one for the ADB returned a request for comment as of press time.

Sources say that the fact that BTA and KKB had enough flows to pay down their deals while Alliance's program is floundering (flows were nearly down to 1x debt-service-coverage ratio in April and falling) sends a strong signal that the largest banks in a given jurisdiction are the best bets for DPR paper.

"In a crisis, it will be the weaker banks that'll suffer," the market source said.

(c) 2009 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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