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Investment Investment Insurance Insurance for Securitizations for Securitizations and Structured and Structured Finance DealsFinance Deals
SME AssetSME Asset--Backed Financing Instruments: Backed Financing Instruments: Opportunities in Europe Opportunities in Europe Bratislava, May 15Bratislava, May 15--16, 200816, 2008
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Contents
Introduction
Role of Political Risk Insurance in improving transaction ratings
Key features of ABS and structured finance transactions insured by MIGA
– MSF Funding (Brazil) October 2000
– BALAEF mortgage securitization (Latvia) December 2004
– BTA Ipoteka mortgage securitization (Kazakhstan) February 2006 and March 2007
– Autopistas Del Nordeste project (Dominican Rep.) February 2006
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Who is MIGA?
Multilateral Investment Guarantee Agency
Member of World Bank Group
Founded 1988
172 Member Countries
Mission
Encourage Foreign Investment through issuance of Political Risk Guarantees
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When PRI most relevant?
PRI most relevant• Domestic assets: consumer loans
and leases, residential mortgages, receivables, SME loans etc.
• Internationally issued securities
INTRODUCTION
Future flowsWorkers remittances
Domestically Issued Securities
Domestic Assets
Consumer loans and leases, residential mortgages etc.
Internationally Issued Securities
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The Issue of the Sovereign Ceiling
Risk layers affecting securitization in new markets
Assets
Structure
Systemic: Macroeconomic/Legal
Convertibility, Expropriation
Source: Moody’s “Securitization in New Markets”
CROSS-BORDER SECURITIZATION
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The Issue of the Sovereign Ceiling
PRI makes sense when the “local currency rating”(intrinsic value) of the underlying pool of assets is higher than the foreign currency rating of the sovereign.PRI can bridge gap to desired rating
Assets Credit Quality
Structural Credit Enhancements
Systemic risk
Legal risk
Country Foreign Currency Rating
Aaa
Local Currency Guidelines Rating
Wrap
PRI
Source: Moody’s “Securitization in New Markets”
Intrinsic Value is
higher than Sovereign
Ceiling
Sovereign Ceiling
CROSS-BORDER SECURITIZATION
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Economic Benefit of PRI
Coupon without PRI
Coupon with PRIMIGA Premium
Benefit to Issuer/Originator
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Political Risk Insurance
The coverage requirements will vary
RisksRelated to currency flows, assets, government regulations or breach of contract
AmountHow much? For Interest or Principal? Or for both P and I?
TenorHow long?
MIGA’S ROLE
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Types of Political Risk Coverage
Protect against losses arising fromCurrency transfer restriction and inconvertibility– inability to convert local currency into forex for transfer outside
the host country
– excessive delays in acquiring forex
Expropriation– nationalization and confiscation– creeping expropriation, partial expropriation (limited coverage)– expropriation of funds only is a possibility– non-discriminatory measures of general application not covered
War and civil disturbance– damage/disappearance of tangible assets due to war or civil
disturbance (including revolution, insurrection, coups d'état, sabotage, and terrorism)
– business interruption when investment is a total lossBreach of Contract – inability to enforce an arbitral award against the Host
Government
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RATING AGENCY
MIGA works with rating agency to customize political risk insurance coverage
ISSUER/ARRANGER
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RATING AGENCY
Timely paymentMIGA works to customize policy
Waiting periods
Liquidity facility to bridge payments during the waiting periods
Ability and willingness to payMIGA explains coverage to Rating Agency
MIGA’s status as a multilateral: Developmental Goals
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EXAMPLE 1
Securitization ofLease Receivables
MSF Funding
BRAZIL
CLOSED OCTOBER 2000
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Project Summary
Securitization of loan and lease receivables from financing of medical equipment in Brazil
MIGA Solution
$90m coverage for principal and interest
Transfer Restriction and Expropriation of Funds
Results
Notes lifted 6 notches above sovereign rating B2/B+/BB- A2/A/A
Lower all-in financing costs
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US
MSF Brazil
MIGA’scoverage
loans and leases
100% ownership
MSF Holdings
Investors(institutional investors,
pension funds)MSF Funding
Borrower(local hospitals)
US
Brazil
loanpayments
interestand principal
payments
paymentflows
MSF BRAZIL
Project Structure
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Structuring Solutions
First cross-border hard asset securitization in Brazil
First example of MIGA and IFC both supporting a capital market transaction (IFC bought a mezzanine tranche).
First PRI supported transaction to be rated by all
three agencies (Moody’s, S&P and Fitch IBCA)
Unprecedented upgrade of 6 notches above the sovereign ceiling
Awarded Structured Finance International “Best
Securitization of Emerging Market Assets”
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EXAMPLE 2
Securitization ofResidential Mortgages
LATVIA
CLOSED DECEMBER 2004
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Project Summary
$63.5m mortgage securitization in Latvia
1st RMBS in Central/Eastern Europe
MIGA Solution
$10.5m coverage for Interest only on the Senior tranche
Transfer Restriction and Expropriation of Funds
Results
Senior notes lifted 3 notches above sovereign ceiling (A2 Aa2)
Improved pricing, tenor, capacity
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Baltic American Mortgage Holdings
EquityUS$.5M
MIGA PRI
TRANSACTION STRUCTURE
US$60.5MPrincipal & Interest US$3.6M US$1.2M
SENIOR NOTESInstitutional Investorsfrom US (Senior Notes), IFC (US$5 M)
MEZZANINE NOTESIFC (mezzanine)
SUBORDINATED EQUITY
Baltic American Enterprise Fund
(equity)
MIGA PRI
Mortgages
US$10 million, 18 months of Interest
Baltic American Mortgage HoldingsTrust 2004 – 1 (Issuer)
LATVIA
Paym
en
tsUSA
Baltic American Mortgage Company
(Originator-Servicer)
MortgagePortfolio
MortgagePayments
$63.5M THE PROJECT
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Structuring Solutions
18 months of interest coverage only sufficient to upgrade the Senior tranche by 3 notches.
Timeliness of payment is key – the total claim process reduced to 87 days to meet the Rating Agency requirements
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EXAMPLE 3
Securitization ofResidential Mortgages
BTA Ipoteka
Kazakhstan
Phase 1 - Warehousing
CLOSED FEBRUARY 2006
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Project Summary
$150m cross-border mortgage-backed securitization in Kazakhstan
MIGA Solution
$75m coverage of principal and interest for the warehouse facility
Transfer Restriction and Expropriation
Results
Credit enhancement necessary to preserve the rating of the multi-seller conduit (rated A1+)
1st cross-border mortgage-backed securitization in Kazakhstan and the CIS
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Originator:BTA Ipoteka
Issuer: First Kazakh
Securitization Company BV
Commercial Paper
Investors
Commercial Paper Issued
USD Proceeds
Pool of Mortgages (Customers)
Mortgage Certificates
ABN Amro Kazakhstan
ABN Amro Bank
Obligation to pay mortgage principal and interest
TRANSACTION STRUCTURE: WAREHOUSE FACILITY
USD/Local Currency RepaymentsNew & Existing Mortgages
Conversion & Transfer of Repayments
USDRepayments
Purchase Price
New Mortgages
ShareholderLoan
MIGA PRI
Netherlands
Kazakhstan
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Structuring Solutions
Coverage for full Expropriation including inability to exercise collateral (foreclose on mortgages)
Coverage applied to a warehouse facility and designed/sized to preserve the rating of a multi-seller conduit which is funding the facility.
The coverage uses a flexible revolving mechanism to account for the facility drawdown and potential fluctuations.
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EXAMPLE 4
Securitization ofResidential Mortgages
BTA Ipoteka
Kazakhstan
Phase 2 - Kazakh Mortgage-BackedSecurities 2007-1 B.V.
CLOSED MARCH 2007
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Project Summary
Securitization of first-ranking residential mortgage loans denominated in Kazakh Tenge (KZT) and indexed to USDThe transaction totals US$141.4m
MIGA SolutionCoverage for six months of scheduled payments of interest on the mortgage portfolio up to US$10.2 million against Transfer Restriction (T&C) and Expropriation
ResultsOne notch rating increase, BBB+ to A-(Fitch) due to T&C coverageFirst publicly rated RMBS transaction from the Republic of Kazakhstan
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Originator:BTA Ipoteka
First Kazakh Securitization Company BV(Loan Notes
Issuer)
Pool of Mortgages (Debtors)
Mortgage Certificates
ABN Amro Kazakhstan
(Kazakhstani AccountBank)
Kazakh Mortgage-
Backed Securities
2007-1 B.V.(Issuer)
TRANSACTION STRUCTURE: TERM DEAL
Interest and Principal Payments
Conversion & Transfer of Payment
Class A to C Loan Notes
Purchase Price
Off-shore
Kazakhstan
MIGA PRI
Class A to C Notes
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Fitch RatingsRMBS/Republic of KazakhstanNew Issue Report, April 2, 2007
Kazakh Mortgage-BackedSecurities 2007-1 B.V.
• The transaction benefits from a political risk insurance policy provided by the Multilateral Investment Guarantee Agency (MIGA, ‘AAA/F1+’), a company of the World Bank Group that provides liquidity to the transaction in the event certain transfer and convertibility risks (T&C) were imposed.
• As the class A notes are rated above the Kazakhstan country ceiling of ‘BBB+’, the issuer has entered into a political risk insurance contract with MIGA (‘AAA/F1+’) to provide coverage for six months of scheduled payments of interest on the mortgage portfolio in the event the Kazakhstan government imposes certain T&C restrictions.
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International Securitisation Report7 December, 2007
Kazakh Mortgage Backed Securities 2007-1 is awarded RMBS Deal of the Year - Europe
Kazakh Mortgage Backed Securities 2007-1 unlocked the potential of Kazakhstan's booming mortgage market. Taking its structural innovations and wide distribution into account, Kazakh Mortgage Backed Securities 2007-1 is ISR's RMBS Deal of the Year. There have been several securitisation transactions from Kazakhstan in recent times in the form of future-flow deals, but in March 2007 ABN AMRO took a huge step by issuing the country's first true-sale RMBS, Kazakh Mortgage Backed Securities 2007-1 (KMBS 2007-1). The transaction incorporated a political interest payment contract provided by the Multilateral Investment Guarantee Agency (MIGA), a subsidiary of the World Bank that covers transfer and convertibility risk, as well as expropriation risks. KMBS was the first emerging market transaction to include expropriation risk, which in turn enabled higher ratings.
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Fitch RatingsKazakh Mortgage-BackedSecurities 2007-1 B.V.Press Release, January 23, 2008
Fitch Ratings has affirmed today the ratings on all the notes of Kazakh Mortgage Backed Securities 2007-I B.V…. Despite the recent revision of the Outlook of the Republic of Kazakhstan's Long-term Issuer Default Rating (IDR 'BBB') to Negative from Stable, the Outlooks of the notes remain Stable. The performance of Kazakh Mortgage Backed Securities 2007-I has been strong, with negligible arrears and significant payment rates…It is likely that a downgrade of the country's IDR would also result in the lowering of the Country Ceiling ('BBB+'), reflecting an increased risk of the Kazakhstan government imposing restrictions on the transfer and convertibility (T&C) of the currency in a stressed environment. However, Fitch believes that the political risk insurance (PRI) contracted with the Multilateral Investment Guarantee Agency (MIGA, a company of the World Bank Group rated 'AAA'/Outlook Stable/F1+') is still sufficient to protect against this increased risk. Under the PRI, MIGA would pay out up to USD10.2m of interests due under the mortgage portfolio in the event of any T&C restrictions being imposed on the currency… This is therefore sufficient to cover the 12 months interruption of the transaction flows envisaged by Fitch in its criteria for notes rated two notches above the Country Ceiling.
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Thank you!
Olga SclovscaiaSenior Underwriterosclovscaia@worldbank.orgt. +1.202.458.2823
For more information,visit www.miga.org