Participants at last week's Global ABS conference held in Barcelona looked east, as a handful of panelists tackled the country of Turkey. ASR's Felipe Ossa caught up with one of them, XLCA Managing Director David Stortz, to chat about this fertile corner of the future-flows world and whether onshore existing assets will soon surface there. The conversation also touched on Russia, where onshore existing assets have blossomed, but have yet to bring monoline insurers to roost.
In step with its rivals, XLCA has a firm foothold in Turkey. Earlier this year, it wrapped a $250 million slice of a deal for the bank Yapi Kredi. The transaction collateralized diversified payment rights (DPRs), which, along with credit cards, have been the only viable asset class in the country over the past few years. In 2005, XLCA took on $950 million in Turkish exposure.
ASR: There was chatter in 2005 about the impending arrival of Turkish existing assets. Then interest rates shot up, and everyone quieted down. The talk revived a bit when the mortgage legislation passed in March. What is XLCA's take on the potential for this market?
Stortz: There are still various hurdles. [The question is] whether those could be overcome, and whether you come out with a structure that a financial guarantor would be interested in. [Are you] buying Turkish lira assets, or is someone willing to take the FX risks? There is a swap market out there, but does the tenor match?
ASR: Then there's the question of ratings.
Stortz: We focus on the global local rating. We need investment grade for our risk to even consider it. I wouldn't say [an existing asset securitization] is out of the question this year, but a lot of things have to come together. We've looked at term sheets and concepts, [but] we've done that for a year or two.
ASR: How about DPRs, do they still appeal to XLCA? Was there a reason you pulled back in 2006, when your peers were active in that class?
Stortz: We were monitoring the available premium levels versus the remaining capacity and didn't find anything that excited us enough to use up more capacity. [It was] purely an economic decision. [Then,] earlier this year, we did the deal for Yapi Kredi, and we continue to monitor opportunities.
ASR: Moving on to Russia, monoline insurers are still not there, even though the country's ABS are in the triple-B/single-A bandwidth. Is XLCA going in anytime soon?
Stortz: We continue to monitor Russia and so far haven't gotten comfortable on a transaction. [More generally,] we haven't gotten comfortable with the banking system risk and the nature of how the political landscape merges with the banking system.
ASR: What would have to happen in Russia for XLCA to consider the country?
Stortz: It's whether our sovereign risk analysts and financial institutions analysts can come together with something we're [all] comfortable with, whether it's a law or [establishing a] track record. [But] it wouldn't necessarily be a specific law change.
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