Zurich U.S. Issues Political Risk Coverage for BHN IV Mortgage Trust; Largest Latin American Mortgage-Backed Offering and First to Benefit From Political Risk Insurance

Business Wire, March 17, 2000

Business Editors

SCHAUMBURG, Ill.--(BUSINESS WIRE)--March 17, 2000

Zurich U.S., a leading provider of property and casualty insurance, has issued a political risk policy for the largest Latin American mortgage-backed offering to date. The political risk insurance policy protects international investors in a $156 million mortgage-backed bond issue by First Trust New York, on behalf of BHN IV Mortgage Trust. The BHN IV Mortgage Trust issue is the first mortgage-backed bond issue to benefit from political risk insurance.

The bonds are backed by U.S. dollar-denominated mortgage loans and are secured by residential properties located in Argentina. The residential mortgages backing the transaction were originated by Banco Hipotecario S.A., or through its third party banking network. Banco Hipotecario is the largest mortgage lender in Argentina. Bear Stearns & Company Inc. arranged the issue and acted as sole placement agent for the deal's senior bonds.

Zurich's political risk coverage, which protects interest payments on the senior bonds against the risks of currency inconvertibility and transfer, helped the bonds secure an investment grade rating from both Fitch IBCA and Moody's. The bonds were rated "A+" by Fitch IBCA and "A1" by Moody's, the highest ever assigned to a Latin American mortgage-backed security and well above Argentina's sovereign rating. The Zurich U.S. policy has a ten-year term and provides coverage for an amount equal to 31 months of interest payments.

To date, Zurich U.S. remains the only private insurer to have insured emerging market bond issues against political risks. In addition, Zurich U.S. can provide up to $100 million in coverage per transaction and can match the tenor of the insured bond, up to a term of 15 years. The capital markets policy provided by Zurich U.S. includes fixed periods for compensation to ensure timely payments, and coverage triggers that do not require a default on the underlying securities.

"The BHN IV Mortgage Trust transaction marks two important milestones: the first use of political risk insurance to enhance mortgage-backed securities and the first use of political risk insurance for a bond issue out of Argentina," said Daniel Riordan, senior vice president and managing director for the Political Risk group at Zurich U.S. "The positive response to the BHN IV transaction in the market, combined with the strong rating that the senior bonds received from the rating agencies, clearly demonstrates the value -of political risk insurance." He added.

"Fitch IBCA's rating is based on a combination of strong structural features. The structure, available credit enhancement and conservative collateral characteristics allow the cash flows to withstand an 'A+' stress," said Mia Koo, director of International Structured Finance at Fitch IBCA. "In addition, the inconvertibility insurance policy mitigates expected sovereign risk at the 'A+' level. This marks the first time that this type of insurance has been used on a securitization of existing receivables. Fitch IBCA believes that inconvertibility insurance can be effectively used in securitizations of various asset classes throughout the emerging markets."

Zurich U.S. (www.zurichus.com) is a leading commercial property-casualty insurance provider serving the multinational, middle market and small business sectors in the United States. Headquartered in Schaumburg, Ill. and operating in all 50 states and the District of Columbia, Zurich U.S. has 6,400 employees and assets of $10.2 billion. The company writes more than $4 billion in annual premiums. Zurich U.S.' business units are Enterprise Risk, Diversified Products, Small Business, Construction, Global Energy, Specialties, Zurich Services and Fidelity & Deposit. Zurich U.S. is a member of the Zurich Financial Services Group, a global leader in the financial industry.

The Zurich Financial Services Group (www.zurich.com) provides its customers with solutions in the area of financial protection and asset accumulation, concentrating in four core businesses: life insurance, non-life insurance, reinsurance and asset management. Headquartered in Zurich, Switzerland, the Group's worldwide presence builds on strong positions in its three home markets: the United States, the United Kingdom and Switzerland. Zurich Financial Services Group has offices in more than 60 countries, employs 68,000 people and reaches 33 million customers.