Russia's securitisation market took another step forward this week when Rosbank priced a $225m Eurobond, the first time a Russian issuer has sold paper backed by credit card receivables.
Credit Suisse First Boston and Merrill Lynch lead managed the five year amortising issue, which has an average life of 3.3 years. The deal size was originally marketed at $150m, with a yield guidance area of high 9%, and was finally priced at 9.75%.
The deal securitises international credit card cashflows from Visa and Mastercard, which the card companies will pay from now on to the Bank of New York as trustee. This makes the transaction an offshore capture of hard currency flows that never enter Russia, thereby avoiding Russia-related risk.
Moody's and Fitch rated the bond, issued through an SPV called Russian International Card Finance SA, one notch higher than their unsecured ratings for the bank, at Ba3/B+.
Rosbank owns United Card Service (UCS), which processes the card payments. All of UCS's shares are pledged to the trustee.
“The performance of this deal has shown the value of enhancing Rosbank's story with the security package,” said Chris Tuffey, head of emerging market syndicate at CSFB in London. “Rosbank is the only bank that could do a deal like this as its credit card processing arm, UCS, has a 90% share of the market.”
There was an order book of over $400m at pricing. By geographic split, this was distributed: UK 40%, Asia 25%, continental Europe 25% and Russia 10%. By investor type, asset managers took 59%, banks 24%, private banks 14% and pension funds 3%.
The bond includes a credit trigger, where amortisation is triggered regardless of cashflows if Rosbank is downgraded below its current rating.
This means that the deal offers investors three levels of comfort, Tuffey said. “We saw some investors looking at Rosbank who had not previously bought either corporate or bank deals from Russia — the triple level of security from Rosbank, the UCS shares and the credit card receivables made it attractive to them.”
After a liquidity squeeze in the Russian banking sector this summer, recent Eurobond issues from privately-owned banks such as Alfa Bank and MDM Bank have focused on the short end of the curve. These offered the best comparables for Rosbank's issue.
According to Fitch, historical voucher payment data from UCS for the period January 2000 to August 2004 suggests a historical debt service coverage ratio (DSCR) of over seven times. In addition an early amortisation trigger level of three times DSCR has been set for the transaction. If the DCSR falls below that level, all principal will be amortised.
Uneximbank, Rosbank's predecessor bank, defaulted on a $250m Eurobond in February 1999 after the country's economic crisis of the previous summer. Some bankers away from the leads suggested that as a result Rosbank needed to offer investors secured paper on its return to market to persuade them to participate.
The roadshow for Russian diamond monopoly Alrosa's 144a issue began yesterday (Thursday) in Geneva and Zurich and is in London today, Hong Kong on Monday, Singapore on Tuesday, Los Angeles on Wednesday, Texas on Thursday, and Boston and Hartford on Friday, before finishing in New York on Monday November 8.