Baker & McKenzie announced the completion of several “innovative” securitizations over the last few months, as both transaction and tax counsel, and involving banks raising more than RUB 70 billion in investor funding.
The firm described the transactions as “a record amount in the Russian securitization market for such a short period,” and calculated that the transactions accounted for more than 80 percent of all the securitizations in Russia over the last nine months. Baker & McKenzie acted as both deal (transaction) counsel and tax counsel on these deals.
In December 2013, Baker & McKenzie’s team completed a RUB 28 billion domestic mortgage securitization for Bank VTB24, which the firm described as “the largest public mortgage securitization ever undertaken in the Russian securitization market.” According to Baker & McKenzie, “the transaction structure allowed the volume of the junior tranche to be decreased, thus increasing the amount of funds raised through the senior tranche. The issued bonds were rated Baa2 by Moody’s. The bonds were placed at a fixed rate of 7.9 percent p.a. and are eligible for repurchase transactions with the Russian Central Bank.”
Also in December 2013, the firm’s securitization team completed a debut deal for Transcapitalbank. The deal was placed under the second Agency for Housing Mortgage Lending (AHML) program for the purchase of mortgage-backed bonds. The transaction involved an innovative mortgage risk insurance mechanism for the underlying collateral. The insurance was provided by AHML. According to the firm, “this mechanism allowed the originator to achieve better subordination (90 percent — senior tranche, 10 percent — junior tranche), which is the lowest subordination on a Russian securitization so far. The issued bonds were rated Baa3 by Moody’s, which is four notches higher than the rating of the originator. The bonds were placed with AHML and a number of private investors allowing the originator to receive financing at the fixed rate of 8 percent p.a.”
In November and December 2013, Investtradebank and Absolut Bank completed repeat mortgage securitizations. The Investtradebank deal was placed under the AHML program for the purchase of mortgage-backed bonds, enabling the bank to receive long-term financing at a fixed rate of 9 percent p.a. Absolut Bank securitized its RUB 9 billion mortgage portfolio and all the issued bonds were placed among market investors at a fixed rate of 8.9 percent p.a. The bonds were rated Baa3 by Moody’s. This is the second successful market placement of mortgage bonds by Absolut Bank.
Also in December, 2013, Baker & McKenzie advised AHML in connection with the first ever multi-originator mortgage securitization. The transaction envisaged the issue of five tranches of bonds, including a mezzanine tranche. Both senior and mezzanine tranches were placed at fixed rates (8.75 percent p.a. and 11 percent p.a., respectively). The structure of the transactions allowed consolidation of the mortgage portfolios of several regional partner mortgage agencies of AHML and enabled capital markets financing to be obtained on favorable conditions. Under the transaction, each originator purchased a junior tranche, the size of which varied depending on the size of the mortgage portfolio of each originator.
In yet another December 2013 transaction, Baker & McKenzie successfully closed the first post-crisis cross-border securitization of consumer loans in Russia. The transaction was arranged by the London branch of Deutsche Bank and included loans originated by the Poidemi Commercial Bank (a member of the Russian “Life” financial group). The structure allowed the bank to raise three-year funding at a favorable interest rate.
In January 2014, Baker & McKenzie’s team completed a RUB 10 billion commercial true sale mortgage securitization. The bonds were issued by the Kama Mortgage agent. The notes were placed with a number of private investors at a fixed rate of 10.9 percent p.a.
Vladimir Dragunov, Moscow Partner and head of the Russian Structured Finance Practice at Baker & McKenzie, issued a statement commenting on the multiple transactions: “We are very proud that our clients have completed such complex and innovative transactions. Each of these deals has its own unique features. The experience and commitment of our team made it possible to successfully implement these transactions in a remarkably short timeframe.”