Securitisation in the CIS Region -Using a Warehouse Structure for the Securitisation of Mortgage Portfolios

Alex MedlockHead of OriginationMNB Capital Markets

C5 London, 12-13 October 2006

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Agenda

• Developments in the Russian Securitisation Market

• Principal Characteristics of a Warehouse Structure

• Structural Considerations• Case Study – City Mortgage Bank• Outlook

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What do Banks securitise?

• MBS – Residential mortgages– Commercial mortgages

• ABS – Auto loans– Consumer loans– Credit cards– Leases– SME loans– Future Flows

• CDO– Backed by loans or bonds

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2005 EMEA Securitisation – by asset class

CDO, 14.00%

CMBS, 13.00%

ABS, 26.00%

RMBS, 47.00%

Source: Moody’s

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Drivers – the housing finance market in Russia

• In EMEA RMBS accounts for over 50% of all issuance

• Housing market in Russia growing rapidly but still small and more or less doubling each year

• Less than 1% of GDP compared to 2-20% in other emerging markets and 40-70% in OECD countries

• IFC estimated medium term potential of Russian mortgage market equivalent to $10bn- $30bn

• Market dominated by Moscow and St. Petersburg but growing importance of regions

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Drivers – Why do Banks Securitise?

• Optimise Funding

• Risk Management

• Capital Management

Access to a new Investor base through higher rating and different asset class

Reliable and competitive funding Liquidity Management Term Funding

Transfer of risks associated with pool of loans

Manage interest rate and credit risk

Release of regulatory capital Improve ROE

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Russia - the story so far….

Gas export receivables - USD 1.25bln issued Jul 2004 - Maturity: Feb 2020. Priced at 7.201%. RegS/144a. Rating: BBB-

Offshore credit card receivables - USD 225m issued Oct 2004 – Maturity: Nov 2009. Priced at 9.75%

Auto loans USD 50m issued July 2005 – Maturity: July 2010. Coupon: 1m Libor plus1.75%pa. Rating Baa3

Residential Mortgages USD 50m Warehouse 1 year Loan Facility – Nov 2005

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Russia - the story so far continued

Consumer Loans - Phase I €126.5 m (Phase II €164.5m to be placed during the nine months from closing). Issued Dec 2005Maturity Dec 2012. Coupon: 1m Euribor plus 2.5%pa

Consumer Loans - €300m in 3 classes – A1 (€228m), A2 (€39m) and B (€33m).Issue April 2006 – Maturity January 2012. Coupon:1m Euirbor plus 1.65% Rating Class A1 Baa2

Diversified Payments Rights – $300 m. Issued March 2006. Maturity March 2011. Coupon: 3m Libor plus 1.60%. Rating Baa3

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Russia - the story so far continued

• In June 2006. VTB, as the originator and the servicer, completed the first Russian RMBS deal in the total amount of US$ 90m. The senior notes were assigned A1 by Moody’s, and BBB+ by Fitch. Coupon - 1-m LIBOR + 1.00% p.a.

• In August 2006 MNB Capital Markets and Greenwich Financial Services concluded the second RMBS issuance in Russia. At the same time, it was the first Russian RMBS transaction carried out in accordance with Rule 144A, which enables qualified US investors to purchase these securities. The senior notes were assigned Baa2 rating by Moody’s. Coupon - 1-m LIBOR + 1.60% p.a.

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SPV

Issuer Borrower

BANKS

Originator

Obligors

Hedge Counterparty

Cash

Manager

Paying

Agent

Corporate

Servicer

Liquidity

Facility

Trustee

Standby Servicer

Asset Data Custodian

Typical Warehouse Structure

Collections

New Mortgage

Contracts

Receivables

Proceeds

USD

Receivables

Proceeds

USD

Class A Loan

USD

Interest Rate and FX Swaps

Subordinated

Loan

Russia Offshore

Mortgage Contracts sale

Receivables

USD

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Structuring Considerations

• Investors

• Structure

• Rating• Legal Opinions• Size• Collateral• Type of Offering

Credit Enhancement FX Liquidity

Public V Private Listing RegS/144a

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Case Study – City Mortgage Bank

Originator & Sevicer: City Mortgage BankIssuer: City Mortgage MBS Finance B.V. (Netherlands)

Transaction Type: USD denominated Mortgage-Backed Sequential

Capped Floating Rate Pass-through Notes

Status of the Notes: Direct, unconditional, secured obligations of the

issuer

Pool Size: USD 72.6m (Senior Class A Notes – USD 63m)

Coupon: 1 – month LIBOR plus 1.60% p.a.

Listing: Irish Stock Exchange

Arranger: Moscow Narodny Bank Capital Markets and

Greenwich Finance Services LLC

Syndicate: RZB Austria (senior co-lead) Banco Finantia (co-

lead)

Lead Managers Counsel: Allen & Overy

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Deal Structure

Issuer:City Mortgage

MBS Finance B.V.

TrusteeBank of New York

Stichting100% of Share Capital

Back-up Servicer:ZAO Raiffeisenbank

Originator:City Mortgage Bank

InvestorsCash Manager:

Bank of New York

Servicer:City Mortgage Bank

Security Security

Notes

Sale of mortgagesCollections Servicing

Fee

ServicerReports

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Capital Structure

• Senior/Subordinated Notes paying sequential• Credit enhancement mainly through subordination of the Class B

and Class C notes plus Reserve Fund• Expenses Contingency Fund

Class A Notes

Class B Notes$6.29 M B1

Class C Notes$3.14 M

Class AFL

$63.1 M Baa2

Class AIIO

Inverse IO

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Collateral Summary

Receivables: Russian Law Mortgage Certificates (“Zakladnaya”) Loans to private individuals secured by mortgage over residential properties

Number: 1,274Outstanding Balance: USD 72.6 millionGeographic Diversity: Moscow, St. Petersburg, Moscow Region,

Nizhniy and SamaraWA Original LTV: 64.89%WA Current LTV: 61.83%WA Seasoning: 0.8 yearsWA Loan Size: USD 56,955Arrears: No loans > 1 monthStatic/Revolving: Static

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Placement

UK37%

USA37%

Southern Europe

10%

Western Europe

16%

Distribution by RegionType of Investor

The notes are rated by Moody’s and were placed in a number of jurisdictions with a variety of investor types as illustrated below:

Commercial Banks63%

Asset Managers

Funds37%

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Outlook for securitisation - 2006

• Russia– Residential and commercial mortgages– Auto loans– Consumer loans– Leases– Future flows– Multi Originator

• Kazakhstan– Future flows– Residential mortgages– Consumer loans

• Ukraine– Residential mortgages– Car loans– Consumer loans