Role of Insurance Grows In Global Debt Offerings As Complexity Increases

Global Finance, Jan 2005 by Platt, Gordon

In October 2004 Sovereign issued a political risk insurance policy assisting Turkey's Finans Bank in raising tier-two capital in the international capital markets. The policy supports the issuance of $200 million of 10-year subordinated callable notes by Finans Capital Finance. The 10-year policy covers up to 18 months of interest payments on the notes against the risks of currency inconvertibility and non-transfer. Merrill Lynch acted as sole placement agent.

Alex von Sponeck, head of EEMEA securitization and structured finance at Merrill Lynch International in London, says, "This is a landmark issue for banks in Turkey, and the Finans Bank deal was timed strategically around the EU accession discussion for the Republic of Turkey." The innovative structure helped the bank achieve its capital-raising objectives at a very competitive pricing level, he says.

Russian Deal Sets Template

Merrill Lynch and Credit Suisse First Boston were lead managers of the first ever securitization of credit-card receivables in Russia, in a $225 million international bond issue made by Rosbank, one of Russia's largest privately owned banks. The deal closed on November 3, 2004.

The five-year notes in the transaction, which were issued through a special-purpose vehicle, Russia International Card Finance, are backed by credit-card cash flows from Visa and Mastercard, payable to Bank of New York as trustee.

"Now that a successful template has been established, we should see more structured bonds of this type in the next few months," says David Barwise, head of White & case's capital markets practice in London. The international law firm acted for the underwriters.

Weil, Gotshal & Manges advised BalticAmerican Mortgage Holdings in the securitization in December 2004 of $63.6 million in residential mortgages it originated in Latvia. Baltic-American is a subsidiary of an enterprise fund capitalized with $50 million of public sector funds through the US Agency for International Development. It provides competitive residential mortgage loans in Estonia, Latvia and Lithuania. Wachovia Bank was the underwriter for the deal, which was the first residential mortgage securitization in the former Soviet Union.

European investment-grade corporate issuance totaled $108.7 billion year-to-date as of December 10, 2004, according to Dealogic.That was down 35% from the same period in 2003. Barclays Capital was the leading bank in terms of revenue, with an 8.2% market share.

European high-yield issuance was running well ahead of the same period in 2003, with Germany accounting for nearly one-third of the issuance, and Deutsche Bank the leading revenue generator.

Global debt capital market volume totaled $424 billion in November 2004, an 11% increase compared to November 2003, and was the highest volume for the month of November on record, according to Dealogic. JPMorgan topped the revenue rankings for November 2004, with an 8% market share.

Telecom Borrowing Is Brisk

In the US high-yield market as well as leveraged loans issuance, telecom was the top industry in 2004. Leveraged loans are syndicated bank loans to non-investment-grade borrowers.