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ALLEN & OVERY OPENS DOOR TO "ASSET CLASS RUSSIA HAS BEEN WAITING FOR" Russian Team Close Landmark RMBS Under 144A

August 11, 2006
Allen & Overy said today that the first public securitisation of Russian law mortgage certificates (zakladnaya) by CityMortgage MBS Finance B.V. was a vital step in developing a vibrant residential mortgage-backed securities market for Russian mortgage portfolios and, ultimately, in providing more affordable home ownership to the Russian people.

"This is the asset-class the industry has been waiting for. Access to the domestic and international capital markets to refinance residential mortgage lending, beginning with stand-alone issuances and ultimately using structures inspired by Fanny Mae, is viewed across the financial and political spectrum as an essential step towards more affordable home ownership for the Russian people. Loan origination using zakladnaya better facilitates the trade of mortgage pools among banks looking to achieve the critical mass necessary for a public MBS issue as well as ultimately, the use of multi-seller conduits. Combining this flexibility with warehouse finance technology will significantly widen the funding sources available to Russian mortgage lenders," said London-based dual Russian and US qualified partner Andrei Baev.

"The Russian team at A&O has been developing significant expertise in relation to securitisation structures over several years, but the deal-flow is now very real so this is a particularly exciting time to be offering securitisation capability on the ground in Moscow," added Stephen Matthews, Moscow-based Senior Associate in A&O's Structured Finance Group. Commenting on the introduction to the Russian market of a senior inverse interest-only derivative class with purely notional principal, Matthews went on to say that “Alongside such a landmark application of zakladnaya for securitisation purposes we worked very closely with our clients to introduce a new derivative class to the market in the form of Class A-IIO Notes that take the structure beyond the regular senior, mezzanine and subordinated piece we are more used to seeing here. This not only illustrates the ingenuity of our clients and the structuring expertise of A&O but also the breadth of investor interest in the Russian securitisation opportunity.”

This transaction is also notable as the first public issuance of mortgage-backed securities featuring a privately owned Russian bank as the seller and servicer. Baev explained, "Although CityMortgage Bank has a strong market position as a specialist mortgage lender, it obviously doesn't have the colossal and diversified balance-sheet of a state-owned Russian bank. For rating agencies, this reality goes directly to the level of servicer risk and in turn, the finest points of the legal structure. 'CityMortgage MBS' therefore exemplifies the benefits of a tightly structured true-sale securitisation for smaller Russian banks." Further, this transaction incorporates the first placement of securities within the United States under Rule 144A which are backed by Russian mortgage assets.

Mortgage certificates, which are created pursuant to dedicated Russian mortgage legislation, embody the loan and insurance receivables, any surety and the related mortgage security in a single instrument transferable by endorsement on its face rather than by registration of an assignment.

The portfolio contains fixed-rate dollar denominated loans secured by residential properties located primarily in Moscow and St. Petersburg. It was acquired by the issuer in various tranches beginning in November 2005 using funds from a warehouse facility. The seller is the specialist residential mortgage lender LLC "CityMortgage Bank". CityMortgage Bank will act as servicer of the portfolio and ZAO Raiffeisenbank Austria has been appointed as back-up servicer. A small portion of the portfolio was originated by Joint-Stock Commercial Bank "Russian Interregional Bank for Development", and initially acquired by CityMortgage Bank in 2004.

In addition to the Class A-IIO Notes, the securities comprise Class A-FL Senior Mortgage-Backed Sequential Capped Floating Rate Pass-through Notes, Class B Mezzanine Mortgage-Backed Fixed Rate Pass-through Notes and Class Z Subordinated Accrual and Profit Participation Notes. The Class A-IIO Notes create a partial interest rate hedge to facilitate the issuance of the Class A-FL Notes: taken together, these two classes always represent a fixed interest rate obligation.

The Class A-FL Notes and the Class A-IIO Notes are subject to a provisional long-term credit rating of Baa2 and the Class B Notes are subject to a provisional long-term credit rating of B1, in each case, from Moody's Investors Service, Inc. A synthetic participation in the Class B Notes through Greenwich Financial Services was pre-sold to The Overseas Private Investment Corporation (OPIC). CityMortgage Bank is to acquire the Class Z Notes.

Allen & Overy advised MNB Capital Markets and Greenwich Financial Services, L.L.C. as Joint Lead Managers.

The transaction was led by Andrei Baev and Stephen Matthews, closely assisted by Associates Katya Abrossimova and Rebecca Goss, and by Trainee Solicitors Camilla Mackenzie and Jonty Knight. Amsterdam-based Partner John Brouwer advised on Dutch tax aspects. Associates Jeroen Bos and Hanneke Verweij also assisted on Dutch law and tax aspects respectively. Partner Chris Bernard advised on US aspects jointly with Andrei Baev and Associate Jennifer Kang. New York Partner Kevin O'Shea and Associates Joanna Hancock and Amand-Benoit D'Hondt advised on the establishment of the warehouse. New York Partner David Slade and Associate Richard Malish advised OPIC.

Clifford Chance advised The Bank of New York as trustee.
  • Status
    early redeemed
  • Country of risk
    Russia
  • Redemption (put/call option)
    *** (***)
  • Amount
    63,127,964 USD
  • М/S&P/F
    — / — / —