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Fitch Affirms Kazakh MBS 2007-1 B.V.'s Class A Notes; Off RWN

May 27, 2011 Fitch Ratings
Fitch Ratings-London-26 May 2011: Fitch Ratings has affirmed Kazakh Mortgage Backed Securities 2007-I B.V.'s (Kazakh MBS) class A and B notes and upgraded the class C notes. The agency has removed all classes of notes from Rating Watch Negative (RWN). Fitch also assigned a Positive Outlook to the Class A and B notes, and a Loss Severity Rating of LS-3 for the class C notes. The rating actions are as follows:

Class A (ISIN XS0293196266): affirmed at 'BB+'; Positive Outlook; Loss Severity Rating 'LS-1'
Class B (ISIN XS0293196696): affirmed at 'B'; Positive Outlook; Loss Severity Rating 'LS-2'
Class C (ISIN XS0293196779): upgraded from 'CCC' to 'B-'; Stable Outlook; Loss Severity Rating 'LS-3'

Kazakh MBS is a securitisation of mortgage loans originated by BTA Ipoteka (BTAI), a wholly-owned subsidiary of BTA Bank ('B-'/Stable).

Fitch placed the ratings on RWN in February 2009 as a result of the rapid deterioration of the portfolio's performance, BTAI's inability to keep repurchasing distressed loans to support performance, and considerable uncertainty as to the servicing of the portfolio if BTAI's operations were to be dissolved. Fitch's affirmation of the class A notes at 'BB+' reflects the stabilisation of the transaction performance and the likely continuation of the portfolio servicing if BTA Bank is to default again in the future.

The agency noted a general stabilisation of the transaction's performance towards the end of 2009 and in 2010, despite BTAI discontinuing its repurchases of distressed loans since September 2009. The "distress rate" that Fitch calculates from loan-by-loan performance data, and that represents the annualised percentage of loans leaving the transaction after reaching 60 days in arrears, was as high as 5.5% in 2008, but fell to 3.6% in 2009 and 2.3% in 2010. Fitch explains this improvement by the recovery of the Kazakh economy, due in turn to the restoration of some of the capital inflows lost during the credit crisis and increasing oil prices. On the downside though the liquidity of the Kazakh housing market remains very limited, as reflected by the central bank's net lending figures. Fitch notes a significant increase in the transaction's three months arrears since the start of 2011, from 0.4% to 1.4% as of April but does not currently see it as a threat to the notes' credit quality given the healthy levels of excess spread (around 4% to 7% annualised, measured after replenishment of the reserve).

Immediate threats to the continuation of BTAI's servicing have eased with the restructuring of BTA Bank's debt (the parent company of BTAI), and the subsequent upgrade of its IDR back to 'B-'/Stable in December 2010. In Fitch's view events surrounding BTA Bank's default have shown that limited reliance can be placed in the back-up servicing arrangements signed with Halyk Bank ('BB-'/Stable), should the servicer's operations face new risks of dissolution in the future. Fitch however notes that the servicing of the portfolio was maintained despite BTA's default; the agency believes BTAI's servicing activities will continue uninterrupted in the medium-term even if BTA's financial situation deteriorates again.

Given the stabilisation of the Kazakh economy and the large excess spread still available, Fitch no longer expects a default of the class C notes, and as such upgrades the rating of this class to 'B-'.

The Positive Outlook for the class A and B notes owes to the large credit enhancement available for these classes. Credit enhancement available to the notes as of April 2011 is as follows: 47.3% for the class A notes, 26.9% for the class B notes and 14.2% for the class C notes.


Fitch will continue to monitor the transaction and take the appropriate rating actions if necessary.
  • Status
    early redeemed
  • Country of risk
    Kazakhstan
  • Redemption (put/call option)
    *** (***)
  • Amount
    123,000,000 USD
  • М/S&P/F
    — / — / —
Company — BTA Hypothec
  • Full name
    BTA Ipoteka Mortgage Co.
  • Industry
    Banks