The first Russian covered bond issuance to receive a rating
higher than its issuer could prompt more use of the capital
raising tool by the countrys fragmented banking sector.
Yesterday Moodys assigned a definitive Baa1 rating to
DeltaCredit Banks R5 billion ($160 million)
covered bond deal two notches above the issuers
Russias biggest banks have to-date only issued a handful
of covered bond deals. DeltaCredits deal opens the market
to Russias many small to medium-sized banks, which
previously did not believe they had the credit rating to
support a covered bonds offering.
Before this deal, the possibility to receive an uplift on
a covered bond transaction in Russia was quite unclear,
said Ekaterina Pervova, counsel and corporate secretary of
Based on the existing legislation and covered bond structure,
many were pessimistic about the possibility of an uplift.
No one really wanted to be the first one to test
it, said transaction counsel Vladimir Dragunov of Baker
& McKenzie in Moscow. This deal demonstrates that you
can get this uplift. I think it really opens the road to a
number of other issuers.
Moody's awarded the rating on the basis of the quality of the
cover pool, which provided additional security to investors, as
well as the analysis of relevant Russian legislation, in
particular Federal law No 152- FZ On Mortgage Backed
Securities, said Pervova.
There was no overcollateralisation.
Typically, Russian covered bond transactions were rated on the
basis of the issuer or guarantors credit rating, without
taking into account the underlying structure of the
transaction, the robustness of the Mortgage Securities Act and
the value of the cover pool.
A lot of work was put in on this deal to provide the necessary
legal comfort on the transaction structure and the operation of
the Mortgage Securities Act.
Explaining to Moodys the particulars of Russias
covered bond law, including the degree of investor protections,
was another significant factor. As noted in the agencys pre-sale report, Russian law
dictates that separate bond issuances must be backed by
separate cover pools.
A framework that discourages the issuance of multiple bonds out
of a single programme is a credit-positive, the report
DeltaCredits R5 billion mortgage covered bond transaction
was placed and rated Baa1 by Moodys on December 11. The
underwriters were VEB Capital and Rosbank.
Transaction counsel: Baker &
2012 Covered Bonds guide http://www.iflr.com/Supplement/86128/Supplements/Covered-bonds-2012.html