The 1st securitization deal of non-mortgage loans according to the Russian law (2015)

#securitization #SPV #Special purpose vehicle #bonds #car loans

Before 01.04.2014 the Russian legislation stipulated the possibility of securitization of mortgage loans only. However, since the adoption of a so-called “Law on securitization” (Federal Law dated 21.12.2013 №379-FZ) it has been permitted to make securitization deals with any monetary claims, including those pledged with moveable assets as well as non-pledged ones.

The task: to raise funds from the capital market using the pool of car loans as a pledge for the bonds.

In general, the structure of the transaction is as follow.
«1» — Assignment agreement on car loans;
«2» — Rating of the senior tranche bonds;
«3» — Placement of the junior tranche bonds;
«4» — Placement of the senior tranche bonds;
«5» — Incomings from debtors (borrowers of car loans);
«6» — Service agent’s report (information about borrowers’ incomings);
«7» — Interest payment on senior tranche bonds;
«8» — Variable interest payment on junior tranche bonds;
«9» — Calculation agent’s report (information about expected incomings).
Relevant publication (in Russian): Securitization needs fine tuning
1. Drafting of term sheet.
2. Preparation of contractual documentation (contracts on assignment, collateral account, service and back-up service agreements as well as an agreement with a calculation agent etc.).
3. State registration of the issuance documentation with the Bank of Russia.
4. Interaction with a rating agency and issuance of a legal opinion.

The senior tranche bonds received investment level ratings by the main international rating agencies, which were significantly above the originator’s rating, and were successfully placed.
Relevant publication (in Russian): Why securitization is needed
Securitization enables an originator to transfer and separate the most quality assets on the SPV’s balance and to issue the bonds whose rating may exceed an originator’s rating.

The instrument is mostly relevant for small and medium-size bank as well as leasing companies with an intention to raise funds from a capital market.
Relevant publication (in Russian): Securitization as an instrument of fund raising.