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Structured finance: Russian securitization makes a big leap

MDM deal heralds new swap technology.

Russia’s ABS market received a big boost last month following MDM Bank’s $430 million securitization of auto loans. The deal set many benchmarks, not least the highest-rated securitization of rouble-denominated consumer loans. It was also the first true-sale securitization out of Russia to be issued in both 144a and Reg S formats.

But what makes it a pioneering deal is its innovative swap technology. The underlying portfolio of auto loans is denominated in roubles and carries a fixed interest rate. The bonds, issued via a special purpose vehicle backed by the loans, are denominated in dollars with a floating rate of interest. To mitigate the currency and interest rate risks related to the transaction, the lead managers, Merrill Lynch and Dresdner Kleinwort, used a balance guaranteed swap.

“It really is a unique swap mechanism that’s allowed us to take out the rouble market risk for investors,” says Alex von Sponeck, head of CEEMEA debt capital markets at Merrill Lynch. “Until now no swap counterparty had been willing to take rouble pre-payment risk.”

What makes the swap mechanism even more important is that the loans are pooled together in a static portfolio – no new loans can be added.

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