Fitch Downgrades Kazakh MBS 2007-1 B.V. Notes
January 20, 2012 Fitch Ratings
Fitch Ratings-London-19 January 2012: Fitch Ratings has downgraded Kazakh Mortgage Backed Securities 2007-I B.V. (Kazakh MBS), as follows:
Class A (ISIN XS0293196266): downgraded to 'BB-sf'from 'BB+sf'; Outlook Negative; RWN removed
Class B (ISIN XS0293196696): downgraded to 'Bsf' from 'B+sf'; Outlook Negative; RWN removed
Class C (ISIN XS0293196779): downgraded to 'CCCsf' from 'B-sf'; RWN removed
Kazakh MBS is a securitisation of mortgage loans originated by BTA Ipoteka (BTAI), a wholly-owned subsidiary of BTA Bank (rated 'RD'). The transaction closed in March 2007 and as of January 2012 was amortised to around 13% of the original issuance balance.
The downgrades and Negative Outlooks on the notes reflect the numerous uncertainties in relation to (i) the removal of the USD-indexation of the mortgage loans, which will result in a immediate reduction on the collateral amount denominated in USD and expose the transaction to future exchange rate fluctuation; and (ii) BTA's recently announced debt restructuring, as reflected by its current 'RD' rating (see "Fitch Downgrades BTA Bank to 'RD'", dated 19 January 2012 at www.fitchratings.com).
The agency estimated that the removal of the USD-indexation would dilute the mortgage portfolio as of end-November by around 31%, to USD17.2m from USD25.1m. However, credit enhancement would remain at 45.5% for the class A, 22.3% for the class B and 7.8% for the class C due to the existing overcollateralisation and the cash reserve in the transaction. Fitch's estimate assumes that for each loan which still has an outstanding balance, the balance would be redefined as the original amount, net of any historical payments in excess of the interest due had the loan not been USD-indexed. The transaction will also be exposed to exchange rate fluctuation. Fitch currently estimates that a depreciation of KZT relative to USD by more than 9% could impair the class C notes.
The actual impact of the USD-indexation removal is subject to several uncertainties. It could be significantly more harmful if the borrowers whose loan are now repaid in full were entitled to claim back from BTAI excess payments made pursuant to the indexation mechanism. This would impact the transaction if BTAI can claim back these amounts against the issuer, which Fitch considers unlikely.
The announcement of BTA's second debt restructuring raises concerns about servicing risk for the transaction. Even if called in by the transaction trustee, Fitch believes the named back-up servicer is unlikely to step in. However, based on the last restructuring in 2010, Fitch currently sees a continuation of BTA's servicing operations as likely.
The portfolio performance deteriorated during 2011. Fitch calculates a distress rate, which measure the percentage of arrear loans repurchased from the issuer. This increased to 4.7% in 2011 from 2%-3% in 2009/2010. However, the agency does not consider this to be a threat to the credit quality of the notes, given the healthy levels of excess spread in the transaction (between 5% and 10% annualised in 2011).
Fitch will continue to monitor the transaction and take the appropriate rating actions if necessary.
Issue — BTA Hypothec, 2029-A (RMBS, FRN)
Country of riskKazakhstan
Redemption (put/call option)
М/S&P/F— / — / —
Company — BTA Hypothec
Full nameBTA Ipoteka Mortgage Co.