Post on 11-Jan-2016
1WORLD BANK GROUP MULTILATERAL INVESTMENT GUARANTEE AGENCY
Political Risk Insurance Political Risk Insurance
for Securitizationsfor Securitizations
Challenges and SolutionsChallenges and Solutions
2WORLD BANK GROUP MULTILATERAL INVESTMENT GUARANTEE AGENCY
Contents
Introduction How credit rating works Role of political risk insurance in improving transaction
ratings Key features of structured finance transactions insured
by MIGA – MSF Funding (Brazil) October 2000
– BALAEF mortgage securitization (Latvia) December 2004
– BTA Ipoteka mortgage securitization (Kazakhstan) February 2006
– Autopistas Del Nordeste project (Dominican Rep.) February 2006
3WORLD BANK GROUP MULTILATERAL INVESTMENT GUARANTEE AGENCY
Who is MIGA?
Multilateral Investment Guarantee Agency
Member of World Bank Group Founded 1988 167 Member Countries
Mission
Encourage Foreign Investment through issuance of Political Risk Guarantees
4WORLD BANK GROUP MULTILATERAL INVESTMENT GUARANTEE AGENCY
What Assets Can Be Securitized?
Domestic assets Domestically issued securities
Consumer loans and leases
Credit card receivables
Trade receivables
Hard assets: leases, residential mortgages etc.
Off shore assets Internationally issued securities
Future flows
Workers remittances
INTRODUCTION
5WORLD BANK GROUP MULTILATERAL INVESTMENT GUARANTEE AGENCY
What Assets Can Be Securitized?
Domestic assets
Leases, SME loans, residential and
commercial mortgages, infrastructure assets etc.
Internationally issued securities
PRI most relevant • Domestic “hard” assets: leases,
residential mortgages etc.• Internationally issued securities
INTRODUCTION
6WORLD BANK GROUP MULTILATERAL INVESTMENT GUARANTEE AGENCY
The Issue of the Sovereign Ceiling
Assets
Structure
Systemic: Macroeconomic/legal
Convertibility, expropriation
Source: Moody’s “Securitization in New Markets”
Credit enhancements for systemic risks
• Payment waterfall • Excess spread and over
collateralization• Tranching and
subordination • Cash deposits and
reserve accounts• Currency and interest
rates hedges
CROSS-BORDER SECURITIZATION
7WORLD BANK GROUP MULTILATERAL INVESTMENT GUARANTEE AGENCY
The Issue of the Sovereign Ceiling
How rating agencies analyze risk
Risk layers affecting securitization in new markets
Assets
Structure
Systemic: Macroeconomic/Legal
Convertibility, Expropriation
Source: Moody’s “Securitization in New Markets”
CROSS-BORDER SECURITIZATION
8WORLD BANK GROUP MULTILATERAL INVESTMENT GUARANTEE AGENCY
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
9WORLD BANK GROUP MULTILATERAL INVESTMENT GUARANTEE AGENCY
Economic Benefit of PRI
Coupon without PRI
Coupon with PRIMIGA Premium
Benefit to issuer/originator
10WORLD BANK GROUP MULTILATERAL INVESTMENT GUARANTEE AGENCY
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
11WORLD BANK GROUP MULTILATERAL INVESTMENT GUARANTEE AGENCY
Types of Political Risk Coverage
Protect against losses arising from Currency 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 loss
Breach of Contract – inability to enforce an arbitral award against the Host Government
12WORLD BANK GROUP MULTILATERAL INVESTMENT GUARANTEE AGENCY
Rating agency
MIGA works with the arranger, according to the rating agency view of the rating to
customize political risk insurance coverage
Issuer/arranger
The Parties
13WORLD BANK GROUP MULTILATERAL INVESTMENT GUARANTEE AGENCY
Rating agency
Key Points
Timely payment
MIGA works to customize policy
Waiting periods
Liquidity facility to bridge gap
Ability and willingness to pay
MIGA explains coverage to Rating Agency
MIGA’s status as a multilateral: Developmental goals
14WORLD BANK GROUP MULTILATERAL INVESTMENT GUARANTEE AGENCY
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 $90 M 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
16WORLD BANK GROUP MULTILATERAL INVESTMENT GUARANTEE AGENCY
US
MSF Brazil Loans and leases
100% Ownership
MSF Holdings
Investors(institutional investors,
pension funds)MSF Funding
Borrower(local hospitals)
US
Brazil
Loanpayments
Interestand principal
paymentsPaymentflows
MSF BRAZIL
Project Structure
17WORLD BANK GROUP MULTILATERAL INVESTMENT GUARANTEE AGENCY
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”
18WORLD BANK GROUP MULTILATERAL INVESTMENT GUARANTEE AGENCY
Industry Opinion
This is the first transaction securitizing existing assets rated by Standard & Poor’s where the assigned rating is higher that the sovereign ratings (both local and foreign currency ratings) of the country where the underlying contracts were originated.
Standard & Poor’s
The ratings assigned to the Notes exceed the B2 Brazilian country ceiling because of the presence of the MIGA guarantee.
Moody’s
19WORLD BANK GROUP MULTILATERAL INVESTMENT GUARANTEE AGENCY
EXAMPLE 2
Securitization ofResidential Mortgages
LATVIA
CLOSED DECEMBER 2004
20WORLD BANK GROUP MULTILATERAL INVESTMENT GUARANTEE AGENCY
Project Summary
$63.5 M 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
(A2Aa2) Improved pricing, tenor, capacity
21WORLD BANK GROUP MULTILATERAL INVESTMENT GUARANTEE AGENCY
Baltic American Mortgage Holdings
EquityUS$0.1M
TRANSACTION STRUCTURE
US$60.5MPrincipal & Interest US$2.1M US$0.9M
SENIOR NOTESInstitutional Investorsfrom US (Senior Notes), IFC (US$5 M)
MEZZANINE NOTESIFC (mezzanine)
SUBORDINATED EQUITY
Baltic American Enterprise Fund
(equity)
Mortgages
US$10 million, 18 months of Interest
Baltic American Mortgage Holdings Trust 2004 – 1 (Issuer)
LATVIA Payments
USA
Baltic American Mortgage Company(Originator-Servicer)
Mortgage Portfolio
MortgagePayments
$63.5M THE PROJECT
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Structuring Solutions
18 months of interest coverage only was 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
23WORLD BANK GROUP MULTILATERAL INVESTMENT GUARANTEE AGENCY
Note: Coverage is for transfer restriction and expropriation of funds.
Note: This information has been copied from Moody’s Investors Service web site from the Pre-Sale report for this transaction.
Pre-sale Report
24WORLD BANK GROUP MULTILATERAL INVESTMENT GUARANTEE AGENCY
EXAMPLE 3
Securitization ofResidential Mortgages
BTA Ipoteka
Kazakhstan
CLOSED FEBRUARY 2006
25WORLD BANK GROUP MULTILATERAL INVESTMENT GUARANTEE AGENCY
Project Summary
$150 M cross-border mortgage-backed securitization in Kazakhstan
MIGA Solution $75 M 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
26WORLD BANK GROUP MULTILATERAL INVESTMENT GUARANTEE AGENCY
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
27WORLD BANK GROUP MULTILATERAL INVESTMENT GUARANTEE AGENCY
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.
28WORLD BANK GROUP MULTILATERAL INVESTMENT GUARANTEE AGENCY
Press coverage
Financial Times
Kazakh bank's mortgage deal coup
By Paul J Davies Published: February 22 2006 02:00
“A mortgage bank in Kazakhstan has completed the country's first true sale of residential mortgage risk with a US$150m deal arranged and sponsored by ABN Amro of the Netherlands.
The deal from BTA Ipoteka, a subsidiary of Bank TuranAlem, a Kazakh bank, comes against a backdrop of improving economic conditions, declining interest rates and a growing mortgage market in the country…
…The BTAI deal allowed the bank to diversify its funding sources to international investors with the benefits of political risk insurance from the Multilateral Investment Guarantee Agency, a subsidiary of the World Bank”.
29WORLD BANK GROUP MULTILATERAL INVESTMENT GUARANTEE AGENCY
EXAMPLE 4
Supporting Structured Financing for Toll Road Project
Autopistas Del Nordeste in
Dominican Republic
CLOSED FEBRUARY 2006
30WORLD BANK GROUP MULTILATERAL INVESTMENT GUARANTEE AGENCY
Project Summary
$211 M financing for construction, operation, & maintenance of 106 km
toll road from Santo Domingo to the Samaná Peninsula under a 33 year concession
No project financing available for 20 years in DR
MIGA Solution MIGA guarantee for $100 M Four MIGA covers: transfer restriction, war, expropriation, and breach of
contract 20 year tenor
Results Project financing available with very long tenors One notch rating increase (B- B) with partial coverage (51%)
31WORLD BANK GROUP MULTILATERAL INVESTMENT GUARANTEE AGENCY
Autopistas del NorteDominican Republic
Autopistas del NorteCayman Islands
International Sponsors
Grupo OdinsaOdinsa Holding
GrodcoGrodco Panama
Morgan Stanley NYArranger
Institutional Investors
Sub. debt and equity $15 M
Bond: $206 M
Local Sponsor
Consorcio Remix
FINAL STRUCTURE
Astris FinanceFinancial Advisor
$4.5 M
Equity and Sub Debt
Dominican Republic
$103 M
32WORLD BANK GROUP MULTILATERAL INVESTMENT GUARANTEE AGENCY
Rating with MIGA coverage
BBB-
STRUCTURING CHALLENGES
Subject to:
Sovereign rating
Six notch increase
Ratification of the Concession (andamendments to the Concession) byCongress
Full coverage of principal and rollinginterest
Four point cover including breachesof government obligations under the toll-road concession
Timely compensation by MIGA underall four coverages
Ratification of the Concession (andamendments to the Concession) byCongress
Full coverage of principal and rollinginterest
Four point cover including breachesof government obligations under the toll-road concession
Timely compensation by MIGA underall four coverages
B-
Fitch’s Rating and Value of MIGA Insurance
33WORLD BANK GROUP MULTILATERAL INVESTMENT GUARANTEE AGENCY
Rating agency constraints:
• Non-ratification of concession
Economic constraints:
• With no investment grade, cost/benefit analysis begin to play
Rating agency constraints:
• Non-ratification of concession
Economic constraints:
• With no investment grade, cost/benefit analysis begin to play
MIGA rating:
• 2 notches lost (from BBB- to BB)
Percentage of MIGA coverage:
• 100% = 4 notch increase (costly!)
• Partial coverage = 1, 2, 3 notches
MIGA rating:
• 2 notches lost (from BBB- to BB)
Percentage of MIGA coverage:
• 100% = 4 notch increase (costly!)
• Partial coverage = 1, 2, 3 notches
STRUCTURING CHALLENGES
Non-Political Risks Affect Rating
34WORLD BANK GROUP MULTILATERAL INVESTMENT GUARANTEE AGENCY
Structuring Solutions
First use of PRI with four covers on a private placement for an Infrastructure project.
Timely coupon payments ensured through a flexible insurance policy, including– special “fast track” arbitration anticipated in Concession
– shortened waiting, claims determination, and payment periods
Agreement by Insurer to accelerate payout in the event of a claim resulting in “date-certain” payouts by MIGA in case of claims
MIGA coverage reduced to 51% of bond issuance (partial cover more than sufficient to attract investors, the issue was 40% oversubscribed)
35WORLD BANK GROUP MULTILATERAL INVESTMENT GUARANTEE AGENCY
Primary Credit Strengths
MIGA Guarantee
The transaction benefits from a PPRG (Partial Political Risk Guarantee) provided by MIGA in an amount to cover 51% of the face value of any loss. The PPRG is conditional and accessible to cover the specific risks of transfer and convertibility, civil disturbance and, most important from Fitch’s view, breach of contract. The breach of contract coverage is designed to help offset any loss that would be attributable to the government not honoring any of its contractual commitments to the toll road. Included in the spectrum of MIGA’s coverage is the government’s commitment to provide the minimum revenue guarantee, as well as broadly defined termination payments.
February 10, 2006
Transportation Projects Autopistas del NordestePresale Report (Cayman) Limited(Preliminary Rating)
Note: This information has been copied from FitchRatings web site from the Pre-Sale report for this transaction. www.fitchratings.com
Fitch Pre-sale Report
36WORLD BANK GROUP MULTILATERAL INVESTMENT GUARANTEE AGENCY
MIGA PROCESS
MIGA Application Process
Preliminary application
Submit preliminary application before the investment is made or irrevocably committed
Available online
Free
Confidential
Can be withdrawn at any time
Definitive application
Detailed form, with information on investment, developmental and environmental impact
Application fee
Confidential
37WORLD BANK GROUP MULTILATERAL INVESTMENT GUARANTEE AGENCY
Thank you!
Ileana BozaGlobal Head Financial Sectoriboza@worlbank.orgt. + 1.202.473-2807
Jorge RivasSenior Underwriterjrivas@worldbank.orgt. +1.202.473.5698
Olga SclovscaiaSenior Underwriterosclovscaia@worldbank.orgt. +1.202.458.2823
For more information,visit www.miga.org