Transcript Securitisation in Russia and the CIS: Moody’s Perspective

Securitisation in Russia and the CIS:
Moody’s Perspective
Presented by:
Daniel Mumzhiu,
Assistant Vice President,
Structured Finance Group
October 11, 2007
Agenda

Latest Developments in the Market and Key
Transactions

Challenges for Securitisation in the CIS

What Moody’s is Looking for from Originators

How to Prepare for Securitisation (and Achieve
the Highest Possible Rating)
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Latest Developments
in the Market and Key
Transactions
Latest Developments in Russia
Growth Though Some Deals are Delayed (or Placed in
Warehouses)

Issuance volume over $1.9B thru August 07 (7 Deals)
USD Bllions
Volume of Securitisation in Russia by Year
4
3.5
3
2.5
2
1.5
1
0.5
0
2004*
2005
2006
2007(YTD)
*Includes Gazprom's $1.5B future flow transaction

Activity has slowed as spreads widen due to sub-prime
crisis

Work continues on legal framework
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Latest Developments in Russia (cont.)
Diversification of Asset Classes Securitized Continues

Moody’s rated the first credit card deal
– Eurasia Credit Card Funding I (Warehouse) Baa2
– More CC deals expected

There have now been 3 Russian CDO’s (1 rated)
– Moody’s rated Sputnik CDO I - A2

Moody’s rated the first domestic RMBS
– First Mortgage Agent of AHML - A3

Growing potential for CMBS and additional leasebacked transactions
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Latest Developments in Kazakhstan and Ukraine
First Existing Asset Transactions

Kazakhstan:
– First RMBS by BTA-Ipoteka (A3)
– YTD issuance of $640mm already topped all of 2006
– DPRs issuance still strong
– Expect additional RMBS and auto transactions

Ukraine:
– First transaction (RMBS) by Privat Bank (Baa3)
– Expect additional RMBS and auto transactions

Some transactions delayed (same as Russia)
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Latest Developments in Kazakhstan and Ukraine
Securitization Volume in Kazakhstan and Ukraine
0.7
$USD Bllions
0.6
Kazakhstan
Ukraine
0.5
0.4
0.3
0.2
0.1
0
2003
2004
2005
2006
2007(YTD)
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2007 Year-to-Date CIS Transactions
Deal Name
Country
Asset
Alfa DPR Finance Co. Series 2007-A&B
Russia
DPR
Red & Black Prime Russia MBS No. 1
Russia
Roof Russia SA
Amount ($MM)
Moody's
S&P
Fitch
393.7
Baa3
BBB-
NR
RMBS
206.3
A2
NR
A
Russia
Auto
400.0
A3
NR
A-
MDM DPR Finance Co. S.A. Series 2007
Russia
DPR
350.0
Baa2
NR
NR
CJSC “First Mortgage Agent of AHML”
Russia
RMBS
122.6
A3
NR
NR
GPB Ipoteka Securities Series 2007-1
Russia
RMBS
268.3
A3
NR
NR
Moscow Stars B.V.
Russia
RMBS
184.4
Baa2
NR
BBB
Ukraine Mortgage Loan Finance No. 1
Ukraine
RMBS
180.0
Baa3
NR
BBB-
Kazakh MBS 2007-1 B.V.
Kazakhstan
RMBS
141.4
A3
NR
A-
Kazkommerts DPR Company 2007-A&B
Kazakhstan
DPR
500.0
Aaa
AAA
NR
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Challenges for
Securitisation in the
CIS
9
Challenges for Securitisation in the CIS

Legal issues
– Top 3: True Sale, Commingling and Set-off Risk

Regulatory issues

Data collection and history

Unrated originators and servicers

Depth of local capital markets

FX convertibility and moratorium risk
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What Moody’s Is
Looking for From
Originators
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Data Requirements


Accurate and complete data is key for analysis so
prepare EARLY
As much historical data as possible
– Static pool data preferred

Check data requirements in advance
– Data requirements depend on asset class and may be
different than in Western Europe

Data should be in the correct format

Third party audit to 99/1 confidence level required
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General Categories of Requested Data

Borrower characteristics

Portfolio growth and characteristics

Delinquency rates

Default frequency

Loss severity and recovery rates

Prepayment rates, prepayment penalties
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How to Prepare For
Securitisation (and
Achieve the Highest
Possible Rating)
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Moody’s Structured Finance rating approach
The Rating Process
Informal
discussions
with arranger
and originator
t0
Operations
review and
discussion
with
management
Rating
mandate
Portfolio
analysis,
legal, tax
and
structural
analysis
Iterative process
giving feedback to
arranger and
originator
Rating
Committee:
Decision on
CE Levels
and ratings
Rating Levels
and CE
Publication
of ratings
and New
Issue Report
Monitoring and
rating changes
Term sheet
Definitive Ratings* and
New Issue Reports
* Publication depends on the nature of a rating.
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Originator Operational Review

Company and management overview

Origination and underwriting standards

Quality Control

Risk Management

Servicing and collection process

Pool/portfolio characteristics and performance

Other documents
16
Servicer Review – Nine Areas

Management

Staff experience, training, compensation

Loan Administration

Arrears management

Loss mitigation

Asset management

IT systems and reporting


General Quality and guidelines (including history,
structure and strategy)
Financial stability
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Suggestions – Early Preparation For a Transaction

Discuss legal issues with lawyers & rating agency

Decide and discuss rating target
– See what enhancement/structure may be needed

Prepare portfolio data, including data format

Prepare historical performance data

Consider back-up servicer

Determine structure
– External support? (PRI, wrap, guarantee)
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Risk Layers and Rating Scales
Political risk
Systemic risks
Legal
Structure
Assets
Origination
Serivicng
History
Currency
swap
IR swap
Liquidity
Back-up
servicing
-------------
Transferability
Convertibility
Expropriation
--------------------
Enforcement FXFraud risk
Global Scale
Payment
systems
Quality of
data/IT
LCNational Overall
stability
Scale
-----------(NSR)
LCGlobal Scale
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Piercing the Foreign Currency Ceiling – How?
Aaa
A rating can exceed the LCC
only by an external guarantee
or insurance “wrap”
Foreign currency ceiling may be
pierced based on: (1) highly rated
local currency obligation
combined with (2) liquidity facility
or political risk insurance
S
Y
S
Credit
T
Enhancement:
E
subordination,
M
reserve, excess
I
spread
C
Assets
Credit
Quality
R
I
S
K
S
L
E
G
A
L
R
I
S
K
S
Country’s local currency ceiling
(LCC)
(Example: A1 for Russia)
Country’s foreign
currency ceiling
(Example: A2 for Russia)
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Foreign and Local Currency Ceilings
Country
Foreign Currency Ceiling
Local Currency Ceiling
Kazakhstan
A2
A1
Russia
A2
A1
Ukraine
Ba3
A3
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