vladimir dragunov, partner baker and mckenzie, moscow 12-13 october 2006 london recent developments...

Vladimir Dragunov, Partner

Baker and McKenzie, Moscow

12-13 October 2006London

RECENT DEVELOPMENTS IN SECURITISATION IN

RUSSIA

Securitisation in Russia and the CIS

©2006 Baker & McKenzie 2

CONTENTS Our Practice and Experience Key Drives for Securitisation in the CIS What can be Securitised in Russia and the CIS Our experience in Russia and the CIS Structuring and Executing the Deal:

Preliminary stage Structuring stage Execution stage

Sample Structures Asset Class Specific Issues


Our Russian Practice The first to open offices in Russia (1989)

The largest international law firm in Russia

Approximately 75 lawyers in the Moscow Office

Functions as an integrated CIS office and practice

Broad banking and finance practice. English law capabilities in the Moscow Office

Dedicated Russian and Global teams of lawyers (London, Frankfurt, New-York, etc.). Philosophy: in-depth local knowledge coupled with international experience

Highly Recommended for Russian Securitisation and Structured Finance work (Legal 500, Chambers Global)


Our Experience in RussiaOur Experience in Russia and the CISand the CIS

Advising on early structured finance projects since 1999. Focus on securitisation throughout the CIS since 2001 and extensive global experience

Advising the International Finance Corporation (IFC) and the Russian State Duma on developing the regulatory framework for securitisation of assets in Russia (Position Paper issued in 2004)


Our Russian and CIS Structured Finance DealsOur Russian and CIS Structured Finance Deals

US$350 millionDiversified Payment Rights Securitisation

Counsel to the Arrangers

March 2006

US$450 millionLeasing Receivables

Securitisation

Counsel to the Originators

March 2006

EUR250 millionWarehouse Facility

Residential Mortgages Securitisation

Transaction Counsel

February 2006

BTA IpotekaRed Arrow Alfa Bank

EUR300 millionConsumer Receivables

Securitisation

Counsel to the Arrangers

April 2005

Russian Standard Bank

EUR300 millionConsumer Receivables

Securitisation

Transaction Counsel

December 2005


Counsel to Monoline Financial Guarantor

December 2005

Home Credit & Finance Bank

Kazkommertsbank

EUR250 millionWarehouse Facility

Consumer Receivables Securitisation

Counsel to the Arranger

November 2005

Russian Standard Bank

Technical Working Group on Securitisation

Russian Legal Framework for Securitisation

Working Group Member

March 2005

International Finance Corporation


Counsel to Monoline Financial Guarantor

June 2006

Kazkommertsbank

US$90 millionResidential Mortgages

Securitisation

Transaction Counsel

July 2006

Vneshtorgbank


Key Drives for Securitisation in the CIS Balance-Sheet Clean-up

- Reduction of the Mandatory Reserves on Assets - Improving Financial Ratios (e.g., borrowing limits)- Disposal of Low Liquidity Assets

Access to Cheaper Financing- Lower Interest Rates/Discounts- Higher Credit Ratings for the Transaction

Diversification of Sources of Funding

Profile Raising

Creation of Long-Term Financing Program


Asset Classes for Securitisation in the CIS Loan Portfolios (mortgage loans, car loans, consumer loans,

corporate loans, less likely: defaulted loans)

Debit and Credit Card Receivables

Diversified Payment Rights (МТ100/103+ S.W.I.F.T messages)

Export Receivables

Domestic Bonds, Bond Portfolios

Lease Payments

Other


General Legal Framework in Russia

Russian Civil Code:

Part 1 (General): assignment, security, general contract issues

Part 2 (Special): factoring, bank accounts, loans and credits, sale and purchase

Part 3 (Conflict of Laws): default scenarios in the absence of choice of law, special rules on assignment

Mortgage Backed Securities Law

Banking Law

New Currency Control Law

General Insolvency and Bank Insolvency Laws

Russian Tax Code

Other


IFC Working Group on SecuritisationIFC Working Group on Securitisation True Sale issues (identification, future receivables, claw-back)

Bankruptcy remoteness of Russian companies

Credit enhancement issues (lock-box accounts, pledge of accounts)

Securities legislation (funding instruments, collateral)

Tax issues (VAT on sale, future flow transactions)

Currency control issues (special accounts, reserve requirements)

PROPOSED SOLUTION: structured and prioritized approach


Challenge Factor (Fitch)• In each jurisdiction the CF takes into account:

– The rule of law– Control of Corruption– Regulatory quality

• Emerging market jurisdictions are then rated on a scale of CF 1- 4:– CF1: no rating cap (Argentina, Brazil, Mexico)– CF2: a rating cap of 8 notches (Poland, Turkey) – CF3: a rating cap of 5 notches (Russia, Kazakhstan,

Ukraine)– CF4: capped at IDR (Nigeria)


Challenge Factor (Fitch)

• No limitiations on CF2 and CF3 jurisdictions where:

– Robust securitisation legislation is in place

– Sound history of securitisation transactions

– Strong true sale opinion

– Involvement of EBRD and IFC


Key Project Stages

1. Preliminary Stage

2. Structuring Stage

3. Project Execution


Preliminary StageGOALS:

1. Early identification and mitigation of potential obstacles to securitisation (e.g., documentation, wording of anti-disposal, assignment clauses, etc.);

2. Preparing quality standard documentation for the originator (standard loan and security documents).


Preliminary Stage (2)STAGE CONTENTS:

Conducting due diligence and preparing recommendations for theimprovement of:

1. Standard agreements of the Originator (e.g., loan, mortgage, bank account agreements, lease agreements, export agreements, financial lease agreements, services agreements, etc.); and

2. Agreements documenting the Originator’s indebtedness (e.g., syndicated loan facilities, Eurobond documentation, domestic bonds offerings, etc.)


Preliminary Stage (3)Certain Russian law issues to be addressed in the documentation:

1. Interest/Commissions/Acceleration/Prepayment

2. Assignments and Transfers

3. Set-off

4. Confidentiality Clauses

5. Negative Pledge Clause

6. Applicable law and dispute resolution

7. Other

Note: wording of clauses may be crucial!


Structuring StageSome issues to be addressed at this stage:

On balance-sheet or off-balance sheet securitisation, setting up an SPV

Domestic or cross-border securitisation

Structure: single, conduit, revolver (master trust)

Funding source: bonds, short-term commercial papers, participation certificates, other

Potential investors: residents, non-residents (Rule 144-А, Regulation S)

Listing: domestic, foreign, double, or both? Private placement?

Other


Structuring Issues in Russia. Between the Lines

Russia is a rather strong pro-debtor jurisdiction. Courts tend to protect the weaker party (e.g., security, netting, assignments)

Increasing importance of court practice and court interpretation (assignments, factoring, security, etc.)

Many foreign law documents and concepts may not work in Russia. Need specific tailoring, careful documentation and wording in the Transaction Documents!

Unawareness of Russian courts and regulators of complex finance transaction, including securitisations


Structuring: True Sale Securitisation

SPV

True SaleTrust Management

Russia

Foreign Jurisdiction

Major Financial Institution

Credit Enhancement

Securities

Sale

POOL OF ASSETS

ORIGINATOR

Special Account


Structuring: Domestic Securitisation

SPV 1 SPV 2

RUB

POOL OF ASSETS

Originator

RUB RUB RUB

INVESTORS

COLLATERAL

BONDS

Repayment of the loan / Receivables

LOAN

TRUE

SALE

RUB.

RUB RUB

RUSSIAMINIMUM

CAPITALIZATION RULES

Agent


Structuring: Certain General Issues Existing Assets v. Future Flow

Bank Secrecy and Data Protection

Setting up and Operating the SPV

Regulatory Approvals

Tax Issues

Currency Control Restrictions

Asset Class Specific Issues


Securitisation of Credit/Debit Card Receivables

BANK(Originator)

SPVAssignment

Special

account

A

B

$40 mln., 2007

$50 mln., 2011

$120 mln., 2030C

Reimbursement

V I S A

MASTERCARD

$

$

Special

account

Payments without netting

Offshore Russia

Payments without netting

Insurance policy

Offshore


Securitisation of Diversified Payment Rights

Payor Bank

Beneficiary

Payor

Concentration Account

Original nostro account

CollateralAccount

New nostroaccount

Investors

SPV

Issue of securities

Payment Order

Russia

Export contract

МТ103+

BANK(Originator)

Sale of DPRs

Crediting the Beneficiary’s account

$

$ $

$

$

$

$Offshore


Use of Factoring in Securitisation Factoring License

A factor should be a “bank, other credit organization or a company holding a factoring license” (Article 825, Russian Civil Code)

BUT: Other legislative provisions

Court practice

Recent trends

Transaction structure

Possible consequences

Russian Licensed Bank

Foreign Licensed Bank

Foreign Factoring Company

Foreign Company

Russian Company

RISKTYPES OF FACTORS


Execution Stage 1. Advising on the structure of the transaction. Due diligence on

Originator and its documentation to identify and resolve potential bottlenecks

2. Drafting and advising on the Transaction Documents (Sale Agreement, Servicing Agreements, Offering Documentation, Credit Enhancement Documentation, etc.)

3. Providing general legal support, participating in meetings, negotiating documentation

4. Providing legal opinions on the transaction (true sale, corporate approvals, validity and enforceability of agreements, etc.)

5. Closing

Vladimir Dragunov, Partner

Baker and McKenzie, Moscow

12-13 October 2006 London

RECENT DEVELOPMENTS IN SECURITISATION IN

RUSSIA

Securitisation in Russia and the CIS

vladimir dragunov, partner baker and mckenzie, moscow 12-13 october 2006 london recent developments...

Documents

russian securitisation

russia securitisation

securitisation of assets

cis slide

baker mckenzie

russian practice

cis structuring

finance practice