OREANDA-NEWS. Transcapitalbank successfully completed its debut transaction on securitizing part of its mortgage portfolio and placing mortgage-backed bonds. The portfolio consists of the Russian residential mortgage loans serviced by Transcapitalbank. The Agency for Housing Mortgage Lending acting within the framework of Program No.2 for the purchase of mortgage-backed bonds has fulfilled its commitment to acquire the RUB 4.1 bn senior tranche of mortgage-backed bonds issued by Transcapitalbank.

Under the transaction, the AHML Group of Companies for the first time both acted as the backup servicer and maintained the credit risk insurance.

This is the first time when lender’s mortgage insurance (LMI) is implemented in a Russian RMBS transaction. This type of credit risk insurance protects the mortgage lender against losses resulting from the borrower’s insolvency, in particular from the mortgage borrower’s default and the following foreclosure on the underlying property.  “Excess mortgage insurance, an absolutely new mechanism applied in the market, significantly improved the reliability of mortgage-backed securities and the transaction structure. All loans in the portfolio benefit from LMI policies covering losses up to 100% of the principal amount. Such excess insurance provided by an insurer with a high international rating does not entail a sizeable increase in the insurance price for the originator while minimizing possible uncertainties in collateral performance under various economic scenarios thus enhancing the reliability of mortgage-backed securities,” explained Andrey Yazykov, General Director, AHML Insurance Company (AHML IC).

Within the framework of the backup service agreement concluded, AHML provides warm service to the originator (taking over credit files, remittance of borrowers’ funds to an account, initiating and involvement in judicial proceedings, etc.). In so doing it will be servicing the mortgage portfolio for 60 calendar days, upon the expiry of which AHML will take over the portfolio as the master servicer.

Alexander Scheglov, Deputy CEO, AHML, reported: “The available backup servicing entailed the higher credit rating of the issued mortgage-backed securities and improved the economic efficiency of the deal in general. The services provided by AHML’s Group allowed to reach the best level of subordination of mortgage-backed securities issued by banks through an SPV. It is noteworthy that in the context of MBS, backup service and LMI provided by AHML’s Group complement each other and put together allow to significantly mitigate the risk associated with MBS and to attain the best subordination level of the issued mortgage-backed securities.

CJSC “Mortgage agent TKB-1” (http://tkb1.ru/) issued Class A and Class B residential mortgage-backed bonds totaling RUB 4.6 bn. Class A bonds with an annual coupon rate of 8% amount to RUB 4.1 bn. Class B bonds total RUB 456 mln. The final maturity date of both bond classes is 14 October 2045.

CJSC VTB Capital was the arranger of the transaction, the legal support was provided by Baker & McKenzie. AHML acted as a backup servicer, AHML IC provided lenders mortgage insurance.

Moody’s has assigned Baa3 global credit rating to Class A bonds; the senior tranche makes up 90% of the total MBS issued. The assigned rating reflects the high credit quality of the securitized mortgage loans.

Evgeni Ivanovsky, Deputy Chairman of the Management Board, Transcapitalbank, commented: “We are glad that Transcapitalbank was the first to having successfully used the new mechanism of placement with excess lenders mortgage insurance which in our opinion has good prospects as a line of development of the Russian MBS market in general.

This transaction is of paramount importance to us as Transcapitalbank retail strategy relies on mortgage products being its flagship products with a priority placed on their development. Our bank is already a top performer in this segment of the banking market planning to strengthen its market position and expand its market share, inter alia,  through purchase of loan portfolios and refinancing other banks relying on repurchase obligations.

Securitization provides for broader diversification of the bank’s funding base; the raised funds will be allocated for further developing mortgage lending carried out by our clients.”

Al in all, within the framework of AHML’s program for acquiring mortgage-backed bonds this year the Agency completed 8 securitizations totaling RUB 26 bn.

In 2013, the Agency for Housing Mortgage Lending acted as a backup servicer under four debut securitizations completed by Raiffeisenbank, Promsvyazbank, St Petersburg Center of Affordable Housing, and Transcapitalbank. After the debut Transcapitalbank securitization transaction was closed, the total volume of backup service provided by AHML in the context of MBS issuance exceeded RUB 20 bn.