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Copyright © 2007 by JCR Eurasia Rating. 19 Mayıs Mah., 19 Mayıs Cad., Nova Baran Plaza No:4 Kat: 12 Şişli-İSTANBUL Telephone: +90(212)352.56.73 Fax: +90 (212) 352.56.75 Reproduction is prohibited except by permission. All rights reserved. All information has been obtained from sources JCR Eurasia Rating believes to be reliable. However, JCR Eurasia Rating does not guarantee the truth, accuracy and adequacy of this information. JCR Eurasia Rating ratings are objective and independent opinions as to the creditworthiness of a security and issuer and not to be considered a recommendation to buy, hold or sell any security or to
issue a loan. This rating report has been composed within the methodologies registered with and certified by the SPK (CMB-Capital Markets Board of Turkey), BDDK (BRSA-Banking Regulation and Supervision Agency) and internationally accepted rating principles and guidelines but is not covered by NRSRO regulations. http://www.jcrer.com.tr
Structured Finance
Rating Asset-Backed Securities
(Preliminary Report)
☒New ☐Update
Publishing Date: Mar.5, 2019
Head of Group:
Zeki M COKTAN zeki.coktan@jcrer.com.tr Chief Analyst:
Orkun INAN
orkun.inan@jcrer.com.tr
+90 212 352 56 73
Türkiye Kalkınma ve Yatırım Bankası A.Ş.
İkinci Varlık Finansmanı Fonu
Type of
Asset-
Backed
Securities
PTCs - Pay
Through
Certificates
Founder Türkiye Kalkınma ve
Yatırım Bankası A.Ş.
Originators
Türkiye İş Bankası A.Ş.,
Akbank T.A.Ş., Yapı ve
Kredi Bankası A.Ş.
Servicer Türkiye Kalkınma ve
Yatırım Bankası A.Ş.
Special Purpose
Vehicle
Türkiye Kalkınma ve
Yatırım Bankası A.Ş.
İkinci Varlık Finansmanı
Fonu
Transaction
Administrator
Türkiye Kalkınma ve
Yatırım Bankası A.Ş.
Issuer
Türkiye Kalkınma ve
Yatırım Bankası A.Ş.
İkinci Varlık Finansmanı
Fonu
Registration Merkezi Kayıt Kuruluşu
A.Ş.
Transferor Türkiye Kalkınma ve
Yatırım Bankası A.Ş.
Risk Retainers
(pro rata)
Türkiye İş Bankası A.Ş.,
Akbank T.A.Ş., Yapı ve
Kredi Bankası A.Ş.
Insurance
Agencies None
Issue
Nominal Size TRY 1 bn at par
Indicative
Interest Rate 17.65% APY
Payment
Frequency-
Principal
At maturity
Payment
Frequency-
Coupon
Quarterly (to be
calculated on 30/360 day-
count convention)
Tenor /Final
Maturity 60 months
Estimated Issue
Date 15.03.2019
Weighted
Average Life 1,434 Days
RATINGS
ABSs to be issued by “Türkiye Kalkınma ve Yatırım Bankası A.Ş. İkinci Varlık Finansmanı Fonu”
Long Term
Short Term
International Local Currency BBB- A-3
National Note AAA (Trk) A-1+ (Trk)
Sover
eign
*
Foreign Currency BBB- -
Local Currency BBB- -
Outlook FC Negative -
LC Negative -
*Assigned by Japan Credit Rating Agency, JCR on November 27, 2018
Overview
“Türkiye Kalkınma ve Yatırım Bankası A.Ş. İkinci Varlık Finansmanı Fonu” (hereinafter referred as Asset Finance Fund, the Fund or SPV) is established for an infinite term by Türkiye Kalkınma ve Yatırım Bankası A.Ş. to issue asset-backed securities.
Approved asset amount of the Fund is up to TRY 1 billion and its originators are Türkiye İş Bankası A.Ş., Akbank T.A.Ş. and Yapı ve Kredi Bankası A.Ş.. The Fund’s estate will be Covered Bonds to be issued by the originators. The underlying assets of the CBs are the cover pool consisting of installment-based residential mortgage loans extended by the originators for property purchases.
Planned to be issued at par by a pay-through mechanism and without any seniority thereamong, ABSs (asset-backed securities) will be sold on the nominal values to local qualified investors or investors domiciled abroad by invitation or private placement without any public offering.
Strengths Constraints • Dual recourse facilities within the covered bond
issuances
• Existence of numerous strict asset eligibility criteria strengthening appropriateness level of assets in cover pool of CBs and Fund’s estate
• High level of global integration of the originator banks in terms of liquidity, capital adequacy and management
• Status of the Founder as a state bank contributing to service quality and transparency
• Homogeneous and multitudinous profile of obligors in the cover pool
• Low level of cover pool delinquencies together with overcollateralization ratios well above & LtV ratios well below legal and contractual ones
• An immune and liquid portfolio of the CBs with matching terms and few conditionalities
• Facility of monthly replacement of cover pools to be provided by the originators
• Regulatory requirement of 5% risk retention mechanism serving as an additional support component for the ABS investors
• Current local regulations in Turkey affording for asset isolation and bankruptcy remoteness
• Fund’s initial assets not including CBs through any true sale or transfer of assets
• Limited excess spread level
• Symmetrical risk profiles across the issue impeding investor diversity regarding absence of waterfall structures
• Detailed risk assessment of the founder falling outside the scope of analyses
• Absence of any guarantor mechanisms
• Growing uncertainties through aggravating geopolitical tension & persisting adversities on debt-servicing
SPV-Special Purpose Vehicle
Türkiye Kalkınma ve Yatırım Bankası A.Ş. İkinci Varlık Finansmanı Fonu 2
I. Rating Rationale
This preliminary rating report has been based on the
information, documents and assumptions provided
by the founder of the Asset Finance Fund and the
originators prior to the issue and does not reflect
final ratings as it will become definitive as the final
rating report provided that the planned issue be
materialized in line with the ratiocinations in this
report. It should be noted by the investors that JCR
Eurasia Rating will reassess undergoing amendments
in the terms of the issue and to the agreements with
their effects thereon and final ratings to be assigned
will be conditional on the receipt of appropriate
documentation.
The primary documents having been analyzed during
this rating assignment process among the other ones
related to all of the parties to the issue were a draft of
intermediation agreement, service agreement, a draft
of asset transfer protocol, internal regulations of the
Fund, issue certificate, trade registry of the Fund,
cover pool procedures, past investor reports, past
statutory tests, and cover pool compositions.
The rating action by JCR Eurasia Rating has been
aimed at the asset-backed securities issue per se
within the framework of the structured finance
methodology. In addition to performance of analyses
by JCR-ER of transaction structure covering such
topics as credit enhancement mechanisms, payment
priority, triggers & thresholds, eligibility criteria,
additional covenants, legal structure, bankruptcy
remoteness, commingling level; collateral
composition and pool characteristics; historical
performance data; risk exposures and mitigants
therefor; cash flow mechanics and stressing risks
thereon, such macroeconomic risks as the general
outlook of the economy and market variables were
analyzed as well within the content of sovereign risks.
Within the counterparty risk analysis, analyses of all
parties, particularly of the originators, were
performed. Planned transaction structures and
documents regarding both ABSs and Covered Bonds
as well were also evaluated in terms of legal risks.
ABSs, of which “Türkiye Kalkınma ve Yatırım
Bankası A.Ş.” is founder and “Türkiye İş Bankası
A.Ş.”, “Akbank T.A.Ş.” and “Yapı ve Kredi Bankası
A.Ş.” are originators, to be issued with a pay-through
mechanism by “Türkiye Kalkınma ve Yatırım
Bankası A.Ş. İkinci Varlık Finansmanı Fonu” are the
securities secured by the assets in the Fund portfolio.
This issue is based on covered bonds issuances by
the 3 originator banks on cover pools consisting of
installments of mortgage loans.
The assets to be transformed into the Fund estate
through a protocol between the parties at repayment
dates will be isolated and bankruptcy-remote, to
which any future recourse action is limited. Assets of
“Türkiye Kalkınma ve Yatırım Bankası A.Ş. İkinci
Varlık Finansmanı Fonu” cannot be pledged,
collateralized, confiscated for the purpose of
collection of public receivables, subject to
preliminary injunction or included within bankruptcy
estate for any purpose whatsoever until the ABSs are
redeemed.
The probability of default risk for payments is
reduced mainly through dual recourse facilities
provided for holders of the prospective covered
bonds: (i) to the issuer irrespective of the
performance of the cover assets; and (ii) against the
cover assets upon the insolvency of the issuer as
referred in the definition in the Article 4 of the CMB Communiqué Serial: III, No: 59.1 named “Covered
Bonds”: “Covered Bond is a capital market instrument
qualified as a debt instrument, issued within the scope of the
issuer’s general liability and collateralized by cover assets”.
The whole ABS structure is further supported by the
homogeneous structure and multitudinous profile of
the mortgage loans which constitute the cover pool
content, the low level of risk concentrations, strict
eligibility criteria by the regulations and additional
SPV-Special Purpose Vehicle
Türkiye Kalkınma ve Yatırım Bankası A.Ş. İkinci Varlık Finansmanı Fonu 3
ones by the originators, periodical verification of
immunity of cover pools through several statutory
tests and the high collectability through involvement
of several parties in the servicer statuses.
Homogeneity of the assets in the cover pool creates a
symmetry in the risks that CB repayments denote and
hence that of expected returns. Although assets of
the Fund ostensibly lack granularity regarding limited
numbers, structure of the assets per se mitigates this
adversity. On the other hand, symmetrical risk
profiles across the structure of the ABSs impede
investor diversity regarding absence of waterfall
structures.
Existence of such features within the cover pool
structure as: (i) low level of historical and expected
delinquencies, (ii) historical (and expected)
overcollateralization ratios well above legal coverage
and contractual O/C ratios, (iii) Loan-to-Value ratios
well below legal limits, (iv) support by substitute
assets, and (v) first lien mortgages is assessed to
additionally bolster the ABS structure and boost the
credit quality of the Fund’s estate as well.
The originator banks with strong market presence
have long business track records and operate in a
strictly regulated environment.
Delinquencies are expected to be reduced through
sufficiency of the originators and servicers in terms
of infrastructure and human resources together with
strict measures in the relevant regulations as well as
an effective internal structuring of the SPV to
contribute to the performance of its obligations
toward ABS investors. Based on these grounds, the
ABSs to be issued by “Türkiye Kalkınma ve Yatırım
Bankası A.Ş. İkinci Varlık Finansmanı Fonu” were
assessed within a low risk category, and were rated as
“AAA (Trk) on the National scale and “BBB-“ on
International Local Currency scale, currently as
capped at the country ceiling of the Turkish
sovereign and may remain susceptible to future rating
actions therein regarding the fact that the underlying
assets are domiciled in Turkey.
II. Type of Asset-Backed Securities to be Issued
& Transaction Structure
ABSs to be issued are of a type of pay-through
certificates. The originators will bear obligation for
covered bonds in the principal amount of TRY 1
billion. The mortgage loan installments will be
maintained within the assets of the originators and
the CBs will be transferred to the SPV “Türkiye
Kalkınma ve Yatırım Bankası A.Ş. İkinci Varlık
Finansmanı Fonu” based on a protocol between the
SPV and the originators at dates of the ABS
repayments. The outline of the ABS transaction
structure is shown in the diagram below:
As ownership of the assets in the portfolio belonging
to the investors, securities will be issued based on
assets with similar attributes in terms of maturity and
interest rate.
Asset-backed securities, based on the covered bonds
to be issued, are planned to be issued at par in the
nominal value of up to TRY 1 billion on March 15,
2019 and will be encashed by “Türkiye Kalkınma ve
Yatırım Bankası A.Ş. İkinci Varlık Finansmanı Fonu”
and quoted on the Borsa Istanbul (BIST), bearing an
indicative interest rate of 17.65% APY, whereby the
coupons are to be calculated on 30/360 day-count
convention. Details of the securities are shown in the
following table:
SPV-Special Purpose Vehicle
Türkiye Kalkınma ve Yatırım Bankası A.Ş. İkinci Varlık Finansmanı Fonu 4
Estimated Date of Issue: 15.03.2019
Asset-Backed Securities to be Issued at Par
Cash Flow Item Date
Amount TRY
(coupons* based on indicative
interest rates) Days
Issue 15.03.2019 1,000,000,000 -
Coupon 15.06.2019 -41,472,922 92
Coupon 15.09.2019 -41,472,922 184
Coupon 15.12.2019 -41,472,922 275
Coupon 15.03.2020 -41,472,922 366
Coupon 15.06.2020 -41,472,922 458
Coupon 15.09.2020 -41,472,922 550
Coupon 15.12.2020 -41,472,922 641
Coupon 15.03.2021 -41,472,922 731
Coupon 15.06.2021 -41,472,922 823
Coupon 15.09.2021 -41,472,922 915
Coupon 15.12.2021 -41,472,922 1,006
Coupon 15.03.2022 -41,472,922 1,096
Coupon 15.06.2022 -41,472,922 1,188
Coupon 15.09.2022 -41,472,922 1,280
Coupon 15.12.2022 -41,472,922 1,371
Coupon 15.03.2023 -41,472,922 1,461
Coupon 15.06.2023 -41,472,922 1,553
Coupon 15.09.2023 -41,472,922 1,645
Coupon 15.12.2023 -41,472,922 1,736
Coupon+Redemption 15.03.2024 -1,041,472,922 1,827
* coupons to be calculated on 30/360 day-count convention
1,434
(WEIGHTED AVERAGE DAYS)
The weighted average maturity of the securities is
1,434 days. Cash flow matching of dates of the
covered bonds in the Fund’s estate and maturity
dates of nominal values of the ABSs to be disbursed
to investors is attained throughout the structure.
III. Main Parties of the Securitization
a) Originators
“Türkiye İş Bankası A.Ş.”, “Akbank T.A.Ş.” and
“Yapı ve Kredi Bankası A.Ş.” will be the originators
throughout this ABS process by transferring the CBs
to the Fund’s estate.
As the originators during this ABS process, the 3
banks will redeem the assets for substitution in the
event that the assets to be transferred to the SPV are
subsequently determined to violate appropriate
qualifications stated in the Fund Rules. Türkiye
Kalkınma ve Yatırım Bankası A.Ş. will not bear any
obligation for mortgage loan installments, which are
subject to the covered bond issuances by the
originators. The covered bonds will be transferred to
the SPV “Türkiye Kalkınma ve Yatırım Bankası A.Ş.
İkinci Varlık Finansmanı Fonu” at dates of the ABS
repayments based on a protocol between the SPV
and the originators.
b) Special Purpose Vehicle
SPVs in Turkey are identified under the name “Asset
Finance Fund” in the relevant legislation. Asset
finance fund is a separate property which is formed
with the proceeds of ABSs issued, in accordance with
the principle of fiduciary ownership. Funds must be
established within the borders of the Republic of
Turkey without any legal entity. Fund estate is
separate from those of the Founder, servicer and
other originators. In the ABS issue process based on
the assets of the originators, “Türkiye Kalkınma ve
Yatırım Bankası A.Ş. İkinci Varlık Finansmanı Fonu”
has a SPV status. The Fund’s establishment was
announced in the Trade Registry dated March 1,
2019 and no: 9778 for issuance of ABSs.
Sufficient location, technical facilities, organizational
structure and human resources have been designated
for the management of assets in the Fund portfolio
and ABS. In this respect, the founding bank
established a Fund board of 3 members. Mr. Erkan
KİLİMCİ, Mr. Metin ÇINAR and Mr. Hakan
KİLDOKUM were assigned as Fund board members
and Mr. Metin YILMAZ as Fund auditor. In
addition, Türkiye Kalkınma ve Yatırım Bankası A.Ş.
was determined as operations manager (transaction
administrator).
Board members meet conditions of university
graduation with at least five years of experience in
banking or capital markets fields and dignified
characteristics required to become a board member.
SPV-Special Purpose Vehicle
Türkiye Kalkınma ve Yatırım Bankası A.Ş. İkinci Varlık Finansmanı Fonu 5
Additionally, at least one of them holds a “Capital
Market Activities Advanced Level License” and
“Derivative Instruments License” in accordance with
the Board licensing regulations.
“Türkiye Kalkınma ve Yatırım Bankası A.Ş. İkinci
Varlık Finansmanı Fonu”, as a SPV, set up internal
control system procedures, bookkeeping, the
organization for documentation and safekeeping of
the information and documents. In implementation
phase, JCR-ER has the opinion that these systems
will function effectively.
It is decided in the Fund regulations that “Türkiye
Kalkınma ve Yatırım Bankası A.Ş. İkinci Varlık
Finansmanı Fonu” can utilize loan only for cash
management purposes on behalf and account of the
Fund up to 1% of its total assets.
c) Risk Retainers
Within the content of the credit risk retention
mechanism required by the relevant current
regulations, the originators, in a risk retainer status,
will purchase 5% of the securities pro rata to be
issued by “Türkiye Kalkınma ve Yatırım Bankası A.Ş.
İkinci Varlık Finansmanı Fonu”.
It is believed that the originator banks have the
relevant and adequate financial strength and
reputation with respect to functionality and
performance of this mechanism.
d) Founder & Transaction Administrator &
Servicer
Cash flows and transfers of investors regarding the
ABSs to be issued by “Türkiye Kalkınma ve Yatırım
Bankası A.Ş. İkinci Varlık Finansmanı Fonu” will be
implemented by Türkiye Kalkınma ve Yatırım
Bankası A.Ş.. Therefore, Türkiye Kalkınma ve
Yatırım Bankası A.Ş. becomes a transaction
administrator.
Türkiye Kalkınma ve Yatırım Bankası A.Ş. is also the
founder of the SPV. JCR Eurasia has not rated
Türkiye Kalkınma ve Yatırım Bankası A.Ş. yet and
detailed risk assessment of the founder falls outside
the scope of analyses.
Türkiye Kalkınma ve Yatırım Bankası A.Ş. was
established on 27 November 1975 as a related
institution of the Ministry of Trade and Technology
with the legal title of “Devlet Sanayi ve İşçi Yatırım
Bankası A.Ş.”. Some adjustments were made on the
status of the Bank on 14 November 1983.
On 15 July 1988, its legal title was changed to
Türkiye Kalkınma Bankası A.Ş. by being associated
to the Prime Ministry in parallel with the
developments in its activities. The Bank had become
a development and investment bank that provides
financing support to companies in tourism sector as
well as trade sector by taking over T.C. Turizm
Bankası A.Ş. with all of its assets and liabilities with
the decision of Supreme Planning Council dated 20
January 1989. Also, with the Decree Law dated 12
February 1990, some of the articles related to the
Bank status were changed.
With the Law dated 14 October 1999 and numbered
4456, Decree Law numbered 13, 165, 329 and 401
were revoked and the establishment and operating
principles of the Bank were rearranged.
The Law numbered 7147 on restructuring of the
Bank was published in the Official Gazette dated 24
October 2018 and no. 30575 and its legal title was
changed to Türkiye Kalkınma ve Yatırım Bankası
A.Ş..
99.08% of the Bank’s shares are owned by the Under
Secretariat of Treasury as of 31 December 2018.
The Bank provides loans to enterprises having the
status of “Incorporated Company” for the purposes
of profitability and productivity of the development
of Turkey, to finance and give operational support by
SPV-Special Purpose Vehicle
Türkiye Kalkınma ve Yatırım Bankası A.Ş. İkinci Varlık Finansmanı Fonu 6
participating to enterprises, to direct domestic and
foreign savings into development investments, to
assist in the development of capital markets, to
finance domestic, foreign and international joint
ventures and carry out all kinds of development and
investment banking activities.
The Bank increased its total assets by 74.9% during
FY2018 over the previous year to TRY15,715 million
and its loan portfolio reached TRY13,642 million.
Its shareholders’ equity grew by 12.8% to reach
TRY1,417 million while exhibiting 9% SHE/Total
Assets and 14.2% Capital Adequacy ratio.
With regard to fulfilling its servicer status, Türkiye
Kalkınma ve Yatırım Bankası A.Ş. has the adequate
experience, human resources, and management and
information technologies to perform daily managerial
duties of the assets in the SPV’s portfolio.
With regard to the service agreement between the
Fund Board and Türkiye Kalkınma ve Yatırım
Bankası A.Ş., the latter will pursue repayments of the
covered bonds in due time and transfer these funds
to the accounts of the Fund, perform all
administrative duties including insurance, tax, etc.,
supervise and monitor the originators’ solvencies and
make the necessary notifications when required,
report all activities to the Fund Board, which might
pertain to the cash flows, offer services of IT, legal
advisory, accounting, operations, custody and in
other managerial fields to the Fund, invest the
balances in the Fund’s accounts in line with
instructions by the Fund, and perform other duties to
be assigned by capital market legislation and SPK
(CMB - Capital Markets Board of Turkey)
regulations.
e) Registration
ABSs to be issued by “Türkiye Kalkınma ve Yatırım
Bankası A.Ş. İkinci Varlık Finansmanı Fonu” are to
be registered under MKK (Central Registry Agency).
IV. Type of Assets in the Receivable
Pool/Collateral
a) Credit Quality of the Securitized Assets
The covered bonds to be issued by the 3 originator
banks (“Türkiye İş Bankası A.Ş.”, “Akbank T.A.Ş.”
and “Yapı ve Kredi Bankası A.Ş.”) will constitute the
Fund’s estate – not initially but at dates of the ABS
repayments based on a protocol between the SPV
and the originators.
The estimated covered bond issuances together with
the estimated cover pools are shown in table below:
Breakdown of the CBs & Cover Pools
Originator Cover Pools
TRY *
CB Outstanding
TRY
CB to be
Issued TRY
Türkiye İş Bankası A.Ş. 8,094,029,779 - 400,000,000
Akbank T.A.Ş. 4,473,130,820 1,593,366,000 200,000,000
Yapı ve Kredi Bankası A.Ş.T.A.O.
6,960,730,127 1,167,800,000 400,000,000
TOTAL 19,527,890,726 2,761,166,000 1,000,000,000
Assets of the Fund cannot be pledged, collateralized,
confiscated even for the purpose of collection of
public receivables, subject to preliminary injunction
and included within bankruptcy estate for any
purpose whatsoever until the ABSs are redeemed.
In cases where the Fund experiences repayment
difficulties, the Capital Markets Board may request
that the members of the Fund board be changed. In
cases where repayment difficulties continue, the
board may decide for the Fund to be transferred to
another founder. In such cases, where the first
founder has provided the guarantee, the founder will
still be obliged to pay the portion of the ABS which
cannot be met by the Fund estate in a timely and
precise manner.
Regarding the fact that underlying assets of the
covered bonds (the latter constituting the assets of
the Fund) are mortgage loans for real estate located
in Turkey, certain conditions set out in the relevant
regulation has been assessed to form an integral part
of the asset quality evaluations.
SPV-Special Purpose Vehicle
Türkiye Kalkınma ve Yatırım Bankası A.Ş. İkinci Varlık Finansmanı Fonu 7
The regulation defines: institutions entitled to issue
covered bonds; issuance limits; application process;
types of cover assets; eligibility criteria to be met by
cover assets; obligation to keep a cover register to
monitor the cover assets in separate special accounts;
protection of cover assets; cover matching principles;
appointment, duties and power of cover monitor
through a cover monitor agreement; and measures to
be taken in case of violation of cover matching
principles and failure of issuer to fulfil its obligations.
Apart from the strict eligibility criteria, the regulation
also sets out statutory tests under the heading of
cover matching principles: (i) Nominal Value
Matching Test; (ii) Cash Flow Matching Test; (iii)
Net Present Value Matching Test; and (iv) Stress
Test. Furthermore, the originators themselves may
specify additional criteria with a view to enhancing
the quality of the cover pool.
Moreover, holders of the prospective covered bonds
are provided with benefits from dual recourse
facilities: (i) to the issuer irrespective of the
performance of the cover assets; and (ii) against the
cover assets upon the insolvency of the issuer as
referred in the definition in the Article 4 of the CMB
Communiqué Serial: III, No: 59.1 named “Covered
Bonds”: “Covered Bond is a capital market instrument
qualified as a debt instrument, issued within the scope of the
issuer’s general liability and collateralized by cover assets”.
These legal regulations are assessed as components
which improve the payment safety and capability of
the Fund’s estate.
The qualities of the assets which constitute the cover
pools of the originators are substantially high and
these assets are assessed to be appropriate for
covered bonds issues and hence for transfer of the
CBs to the Fund portfolio for the following reasons:
▪ Homogeneous maturities,
▪ Multitudinous profile,
▪ Payments realized in identical installments,
▪ Similarity of creditworthiness of obligors,
▪ Large receivable portfolio,
▪ Determinate cash flows, consistency of the disbursements regarding securities and their high predictability level,
▪ Well defined repayment schedule,
▪ Low level of historical and expected delinquencies,
▪ Historical (and expected) overcollateralization ratios well above legal coverage and contractual O/C ratios,
▪ Loan-to-Value ratios well below legal limits,
▪ Support by substitute assets,
▪ First lien mortgages.
b) Collateral Analysis
The issue of the ABSs will be based on the covered
bonds providing its investors with dual recourse
facilities. The covered bonds are also secured by liens
and other collaterals.
In the event that parts of assets included as covered
bonds in the Fund’s estate are determined to be
inappropriate, the originators will redeem the assets
for substitution. This function of the originator was
assessed partly as support to the Fund’s estate
although defaults by the loan users are outside the
scope of this function.
The regulatory requirement that the originator(s) (or
the founder), in a risk retainer status, will purchase
5% of the securities pro rata to be issued by “Türkiye
Kalkınma ve Yatırım Bankası A.Ş. İkinci Varlık
Finansmanı Fonu” is another support component for
the ABS investors. However, this should not be
assessed as an equity tranche whereby the losses
might be initially absorbed.
V. Obligor Credit Quality in Cover Pool
The cover pools of all of the originator banks exhibit
homogeneous maturities and multitudinous profiles
of the obligors (residential mortgage loan users).
Average mortgage loan balance varies between
SPV-Special Purpose Vehicle
Türkiye Kalkınma ve Yatırım Bankası A.Ş. İkinci Varlık Finansmanı Fonu 8
TRY63,781 and TRY74,972 while weighted average
term to maturity is between 53.6 and 68 months.
Weighted average current Loan-to-Value ratio is
between 32% and 49.4%.
The top1/top4 city concentration values are between
26%/52.8% and 34%/57%.
Shares of the NPLs in the overall mortgage
portfolios vary between 0.35% to 0.63% and the
delinquent ones (past due up to 30 days at most) are
between 1.66% to 2.70%.
All of these indicators are within the legal and
contractual limits and assessed to remain within
reference values with adequate buffers against
possible adversities.
VI. Risk Drivers & Mitigants
Market Risk:
As interests on the covered bonds and all loans in the
cover pool are fixed and principal and interest
amounts are denominated on the local currency
TRY, the ABS process does not include any
exchange risk.
However, the ABSs to be issued include interest risk
with regard to alternative profit or loss within their
maturities. The main features of this period through
which the ABSs will be issued are the upside risks on
interest rate levels and unpredictability, which are in
turn expected to generate alternative gains or losses
of interest earnings. This situation rouses the swell of
volatility and uncertainty throughout the term of this
ABS issue.
Transfer and Convertibility Risk:
Foreign exchange markets in Turkey are considerably
integrated with global markets and facilitate perfect
competition. However, foreign exchange trading
margins and their volatilities, the revaluation and
devaluation of the local currency against foreign
currencies, the amount of foreign currency reserves
of the country, the balance of payments and the
current account deficit/surplus structure are the
subcomponents of transfer and convertibility risks.
On the other hand, the convertibility of the TRY is
considerably high thanks to the absence of
government interventions or legal restrictions on
foreign exchange trading.
Consequently, the ABSs to be issued bear very low
transfer and convertibility risks regarding investors.
Redirection Risk:
Subject of redirection risks is nonfulfillment of
mutual obligations by the parties to the ABS issue
and redirection of these obligations to other
irrelevant organizations or parties through such
reasons as public enforcement or other. Within the
context of redirection risk, JCR-ER associates two
types of risk with the ABS issue: receivable diversion
risk and payment diversion risk. These risks may
occur rather in payments and receivables in foreign
currency denominations.
In recent years in Turkey, there has been no evidence
as to constitution of receivable diversion risk
elements through public enforcement based on
economic reasons for Turkish governments have not
been willing or urged by any economical exigency
necessitating redirection of assets in receivable pools
to Central Bank or to any other public institutions by
legal enforcement.
Moreover, it is not to be discussed in Turkey that
there is any economic necessity to redirect the
payments by the obligors to public institutions other
than the originator or servicers through public
enforcement. In this regard, payment diversion is a
negligible risk element for foreign investors in the
near future.
SPV-Special Purpose Vehicle
Türkiye Kalkınma ve Yatırım Bankası A.Ş. İkinci Varlık Finansmanı Fonu 9
Inadequacy of the Cover Pool Value:
The issuers of the Covered Bonds have to comply
with certain cover matching principles by
implementing certain Statutory Tests required by the
regulations throughout the lives of the Covered
Bonds. In case of any breach of any of the tests, the
issuer is required to correct such non-compliance
within one month of its detection.
The issuer is obliged by the Communiqué on CBs to
ensure that the net present value of the Cover Pool
Assets exceeds at all times, by at least 2%, the net
present value of the total liabilities stemming from
the issued covered bonds. Furthermore, the issuer
has also to comply with some other
overcollateralization ratios (expected to be generally
much above the legal ones) through its contractual
obligations.
The cover monitor appointed pursuant to the said
regulation is entitled to sell cover pool assets,
purchase new assets, utilize loans or conduct
repurchase transactions even as well as resorting to
early redemption option as the needs arise to secure
the Covered Bondholders to receive their payments.
Downside Risks Regarding Mortgaged Property
Value:
Initially, the value of the individual loan obligation is
overcollateralized by the mortgage held by the issuer
regarding loan-to-value ratio limits imposed when a
mortgage asset is originated. However, the value of
the mortgaged property may decline over time
through falling property prices or for some other
various reasons. According to the regulation, the
issuer is obliged to monitor changes in the property
prices and determine the ratio of such change (the
Property Price Change Ratio) annually possibly based
upon the Property Price Index and must recalculate
whether the assets comply with the requirements.
JCR Eurasia has the assessment of very low risk level
in this regard considering the current loan-to-value
ratios in the cover pools submitted by the originators
much below the regulatory limits.
Default by Borrowers:
Borrowers may default depending on various reasons
and may face the inability to sell the property given as
security for a mortgage asset at a price sufficient to
repay the mortgage loan at the same time – thus
resulting in decline in value of the cover pool.
The historical and current delinquency rates of the
submitted cover pool assets are assessed to be very
low with regard to posing any significant risks.
Prepayment Risk:
The monthly installments of the mortgage loans in
the cover pool and their payment dates are fixed at
the loan utilization stage although prepayments
regarding the obligors are allowed. Although Turkish
residential mortgage loan agreements include a
prepayment charge of up to 2% of the outstanding
principal amount of the loan, loan users may not be
deterred by this charge in periods of rapidly declining
interest rates – ostensibly exerting pressure on the
lenders’ funding structure.
However, regarding relatively low share of residential
mortgage loans (<10%) within the total loans of the
Turkish banking sector in general and expected high
overcollateralization ratios in particular, this matter is
not expected to pose significant challenges on the
covered bonds.
VII. Credit Enhancement
The comparison of the interest rates of the covered
bonds and the ABSs implies that the Fund’s estate is
expected to generate limited excess spread over the
interest rate on the issue amount throughout the
term of the issue and may cause depletion therein.
On the other hand, the structure is not exposed to
any interest rate mismatch in terms of fixed vs.
floating rates.
SPV-Special Purpose Vehicle
Türkiye Kalkınma ve Yatırım Bankası A.Ş. İkinci Varlık Finansmanı Fonu 10
On the other hand, yields of the covered bonds were
already included in the determination of the Fund
estate and have not been assessed as an enhancement
mechanism.
As for both internal and external credit enhancement
mechanisms, the following structures were also not
constituted for this issue:
✓ Senior Subordinated Structure/Waterfalls
✓ Reserve Account
✓ Letters of Credit / Liquidity Facilities
✓ Surety Bond
✓ Insurance
VIII. Issue details
The issue process has been designated as follows:
▪ ABSs representing the Fund amount to be sold
to local qualified investors or investors
domiciled abroad by invitation or private
placement without any public offering
▪ ABSs to be traded in Borsa Istanbul’s
Offerings Market for Qualified Investors
▪ Intermediary institution during the ABSs sales
to be determined
▪ ABSs not to be printed and delivered physically
and to be traced by MKK as dematerialized
securities on a customer basis
▪ ABSs to be sold at par on their nominal values
▪ Transfer of cash flows in the same day received
through covered bond repayments to the
accounts of “Türkiye Kalkınma ve Yatırım
Bankası A.Ş. İkinci Varlık Finansmanı Fonu”
without any suspension
▪ Transfer of ABS values by the Fund to the
accounts of investors at maturity dates
IX. Payment Structure and Cash Flow
Mechanics
“Türkiye Kalkınma ve Yatırım Bankası A.Ş. İkinci
Varlık Finansmanı Fonu” will transfer to the
originator banks the ABSs values (nominal: TRY 1
billion) to be issued at par by collecting the amounts
from investors in exchange for the covered bonds it
would acquire at repayment dates through a protocol
between the founder and the originators.
Cash Flow Item Date
Amount TRY
(coupons* based on indicative
interest rates) Days
Issue 15.03.2019 1,000,000,000 -
Coupon 15.06.2019 -41,472,922 92
Coupon 15.09.2019 -41,472,922 184
Coupon 15.12.2019 -41,472,922 275
Coupon 15.03.2020 -41,472,922 366
Coupon 15.06.2020 -41,472,922 458
Coupon 15.09.2020 -41,472,922 550
Coupon 15.12.2020 -41,472,922 641
Coupon 15.03.2021 -41,472,922 731
Coupon 15.06.2021 -41,472,922 823
Coupon 15.09.2021 -41,472,922 915
Coupon 15.12.2021 -41,472,922 1,006
Coupon 15.03.2022 -41,472,922 1,096
Coupon 15.06.2022 -41,472,922 1,188
Coupon 15.09.2022 -41,472,922 1,280
Coupon 15.12.2022 -41,472,922 1,371
Coupon 15.03.2023 -41,472,922 1,461
Coupon 15.06.2023 -41,472,922 1,553
Coupon 15.09.2023 -41,472,922 1,645
Coupon 15.12.2023 -41,472,922 1,736
Coupon+Redemption 15.03.2024 -1,041,472,922 1,827
* coupons to be calculated on 30/360 day-count convention
1,434
(WEIGHTED AVERAGE DAYS)
At the maturity dates of the ABSs, the amounts
accumulated through the collections of the covered
bond repayments in the Fund’s estate will be
disbursed to ABS investors on nominal values.
The SPV will also pay commissions and fees to: the
servicer and the operations manager, Türkiye
Kalkınma ve Yatırım Bankası A.Ş.; MKK (Central
Registry Agency); independent audit firm; rating
agency; and Borsa Istanbul for listing, total of which
must not exceed current market prices and be capped
at 0.5% whatsoever of the nominal value of the Fund
estate according to the current regulations.
SPV-Special Purpose Vehicle
Türkiye Kalkınma ve Yatırım Bankası A.Ş. İkinci Varlık Finansmanı Fonu 11
X. Legal and Regulatory Risks and
Documentation Review
The Communiqué Serial: III, No: 58.1 named
“Principles Regarding Asset and Mortgage Backed
Securities” published in the Official Gazette dated
January 9, 2014 and no. 28877 and issued under the
Capital Markets Law dated December 6, 2012 and
no. 6362 forms the legal ground of the ABSs to be
issued. ABSs are securities issued as secured by the
assets in the fund portfolio. As a principle, payments
to ABS holders will be paid essentially from the cash
inflows from the assets in the fund portfolio.
However, such facilities as additional loans, resorting
to the guarantor, claims against insurance companies
and other existing collaterals can be utilized.
Assets of the Asset Finance Funds cannot be
pledged, collateralized, confiscated even for the
purpose of collection of public receivables, subject to
preliminary injunction and included within
bankruptcy estate for any purpose whatsoever until
the ABSs are redeemed.
Different than the case where debts and obligations
in the balance sheets of the companies arising
through security issues are not ranked in a high
priority level, payment delay risks that arise from the
arrangement of debts will not apply to this ABS
process due to the inclusion of the issued ABSs
within the obligations of the asset finance fund in a
SPV position and the fact that assets of the fund
cannot be deposited, pledged, collateralized,
confiscated even for the purpose of collection of
public receivables.
On the other hand, the Communiqué Serial: III, No:
59.1 named “Covered Bonds” published in the
Official Gazette dated January 21, 2014 and no.
28889 and issued under the Capital Markets Law
dated December 6, 2012 and no. 6362 forms the legal
ground of the Covered Bonds to be issued by the
originators.
Underlying assets of the covered bonds are mortgage
loans for real estate located within the borders of the
Republic of Turkey. The related Communiqué on
Covered bonds regulates mortgage covered bonds as
well as other asset-backed covered bonds and
principles and procedures regarding the qualities and
issuance of covered bonds as well as the cover
monitor, cover assets and cover matching.
It is believed that all of the agreements signed among
the parties to the ABS issue process as well as those
for the covered bonds issuances and internal
regulations of the SPV are arranged with compliance
to relevant legal regulations by SPK and other
institutions. Factors to generate additional risks
particularly with respect to the implementations of
the Law of Obligations and the Law of Bankruptcy
are eliminated.
The fact that each stage of the process and all of the
documents are subject to the permission and
approval by SPK reduces the risks to be incurred
with respect to legal documentation.
SPV-Special Purpose Vehicle
Türkiye Kalkınma ve Yatırım Bankası A.Ş. İkinci Varlık Finansmanı Fonu 12
SPV-Special Purpose Vehicle
Türkiye Kalkınma ve Yatırım Bankası A.Ş. İkinci Varlık Finansmanı Fonu 13
Estimated Date of Issue: 15.03.2019
Asset-Backed Securities to be Issued at Par
Cash Flow Item Date
Amount TRY
(coupons* based on indicative interest rates) Days
Issue 15.03.2019 1,000,000,000 -
Coupon 15.06.2019 -41,472,922 92
Coupon 15.09.2019 -41,472,922 184
Coupon 15.12.2019 -41,472,922 275
Coupon 15.03.2020 -41,472,922 366
Coupon 15.06.2020 -41,472,922 458
Coupon 15.09.2020 -41,472,922 550
Coupon 15.12.2020 -41,472,922 641
Coupon 15.03.2021 -41,472,922 731
Coupon 15.06.2021 -41,472,922 823
Coupon 15.09.2021 -41,472,922 915
Coupon 15.12.2021 -41,472,922 1,006
Coupon 15.03.2022 -41,472,922 1,096
Coupon 15.06.2022 -41,472,922 1,188
Coupon 15.09.2022 -41,472,922 1,280
Coupon 15.12.2022 -41,472,922 1,371
Coupon 15.03.2023 -41,472,922 1,461
Coupon 15.06.2023 -41,472,922 1,553
Coupon 15.09.2023 -41,472,922 1,645
Coupon 15.12.2023 -41,472,922 1,736
Coupon + Redemption 15.03.2024 -1,041,472,922 1,827
* coupons to be calculated on 30/360 day-count convention 1,434
(WEIGHTED AVERAGE DAYS)
Breakdown of the CBs & Cover Pools Originator Cover Pools TRY CB Outstanding TRY CB to be Issued TRY
Türkiye İş Bankası A.Ş. 8,094,029,779 - 400,000,000
Akbank T.A.Ş. 4,473,130,820 1,593,366,000 200,000,000
Yapı ve Kredi Bankası
A.Ş.T.A.O. 6,960,730,127 1,167,800,000 400,000,000
TOTAL 19,527,890,726 2,761,166,000 1,000,000,000
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