home credit & finance bank securitisation of consumer loans in russia : first ever...
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Home Credit & Finance BankHome Credit & Finance Bank
SECURITISATION OF CONSUMER LOANS IN RUSSIA :SECURITISATION OF CONSUMER LOANS IN RUSSIA :
FIRST EVER SECURITISATION OF RUBLE ASSETSFIRST EVER SECURITISATION OF RUBLE ASSETS
Dmitri Mosolov – Deputy Chairman of the Board
London, 13 October 2006
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Important Notice
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HCFB INTRODUCTION
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HCFB: fast growing consumer finance company
Second largest provider of consumer point-of-sale (‘POS’) finance and credit cards in Russia
Part of the Home Credit Group (‘HCG’) which operates in consumer finance markets in the Czech Republic, Slovakia, the Russian Federation and Kazakhstan
HCG is part of PPF Group, the largest non-banking financial services group in the Czech Republic
Launched in 2002
Major products: point-of-sale (POS) loans and revolving credit cards
Consumer loan portfolio of estimated RUR 29bn(1)
Large network of 57 representative offices and over 21,000 POS across the country
International Ratings: Moody’s Ba3/NP/D-, S&P B-/C
Note: (1) As of 1H 2006.
5,3
19,5
29,1 28,7
0
5
10
15
20
25
30
2003 2004 2005 1H2006
consumer loan portfolio (bln RUR)
Rapid growth in consumer loan portfolioRapid growth in consumer loan portfolio
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STABLE & DIVERSIFIED FUNDING BASE
Note: * the issue redeemed on Oct 18, 2005
** first drawing, total Facility amount can be increased up to US$ 50m
US$ 50m Syndicated Loan Facility due 2006 (Jan ’06)
RUR 1.5bn due ‘07 (Oct ’04) * RUR 3bn due ‘10 (May ’05) RUR 3bn due ’10 (Sept ’05)
US$150m due 2008 (Jan ’05) US$275m due 2008 (Jun ’05)
US$ 25m** Loan Facility with BNP Paribas due 2006 (Nov ‘05)
DOMESTIC RUR BOND MARKET DOMESTIC RUR BOND MARKET
EUROBOND MARKETEUROBOND MARKET
BILATERAL LOANSBILATERAL LOANS
INTERNATIONAL SYNDICATIONSINTERNATIONAL SYNDICATIONS
ASSET-BACKED SECURUTISATIONASSET-BACKED SECURUTISATION
Consumer loan securitisation EUR 126.5m due 2012 (Dec ’05)
LISTING PROSPECTUS DATED 7 DECEMBER 2005
EURASIA STRUCTURED FINANCE No. 1, S.A., Compartment 1
Up to € 230,000,000 Class A-1 Consumer Loan Receivables Backed Floating Rate Notes due May 2012 Up to € 33,000,000 Class A-2 Consumer Loan Receivables Backed Floating Rate Notes due May 2012 Up to € 28,000,000 Class B Consumer Loan Receivables Backed Floating Rate Notes due May 2012
Detachable Class Z Consumer Loan Receivables Backed Coupons due May 2012 to be issued by
EURASIA STRUCTURED FINANCE No. 1, S.A., Compartment 1
A limited liability company incorporated in Luxembourg with company registration number
R.C.S. Luxembourg B 111 361
Issue Price: 100 per cent.
EURASIA STRUCTURED FINANCE No. 1, S.A., Compartment 1 is registered with the Luxembourg Commercial Register under registered number B 111 361 (the "Issuer"). The Issuer has elected in its Articles of Incorporation (Statuts) ("Articles") to be governed by the Luxembourg law of 22 March 2004 on securitisation (the "Securitisation Law"). The exclusive purpose of the Issuer is to enter into one or more securitisation transactions, each via a separate compartment ("Compartment") within the meaning of the Securitisation Law. The Issuer will issue on 8 December 2005 (the "Closing Date") € 230,000,000 Class A-1 Consumer Loan Receivables Backed Floating Rate Notes due May 2012 (the "Class A-1 Notes"), up to € 33,000,000 Class A-2 Consumer Loan Receivables Backed Floating Rate Notes due May 2012 (the "Class A-2 Notes" and, together with the Class A-1 Notes, the "Class A Notes"), € 28,000,000 Class B Consumer Loan Receivables Backed Floating Rate Notes due May 2012 (the "Class B Notes" and, together with the Class A Notes, the "Notes"), as well as the Class Z-1 Consumer Loan Receivables Backed Coupons (the "Class Z-1 Coupons") and the Class Z-2 Consumer Loan Receivables Backed Coupons (the "Class Z-2 Coupons" and, together with the Class Z-1 Coupons, the "Class Z Coupons").
One Class Z-1 Coupon will be attached to each Class A-1 Note and one Class Z-2 Coupon will be attached to each Class A-2 Note but, from date of allotment of the relevant Class A Note, the attached Class Z Coupon will detach from the Class A Note and become fully transferable independently of such Class A Note. Detachment of a Class Z Coupon from a Class A Note will have no effect on the Principal Amount Outstanding of the Class A Note and will not reduce the principal payable in respect of that Class A Note, even where the Class A Notes are redeemed prior to the Final Maturity Date.
On the Closing Date, the Issuer will allot € 100,000,000 Class A-1 Notes (the "Original Class A-1 Notes"), € 13,500,000 Class A-2 Notes (the "Original Class A-2 Notes" and, together with the Original Class A-1 Notes, the "Original Class A Notes"), € 13,000,000 Class B Notes (the "Original Class B Notes" and, together with the Original Class A Notes, the "Original Notes") as well the related Class Z-1 Coupons (the "Original Class Z-1 Coupons") and the related Class Z-2 Coupons (the "Original Class Z-2 Coupons" and, together with the Original Class Z-1 Coupons, the "Original Class Z Coupons").
LEAD MANAGER AND SOLE BOOKRUNNER
BAYERISCHE HYPO- UND
VEREINSBANK
MANAGER
PPF BANKA
Within nine months from the Closing Date, the Issuer will be entitled to allot up to a further € 130,000,000 Class A-1 Notes (the "Delayed Draw Class A-1 Notes"), € 19,500,000 Class A-2 Notes (the "Delayed Class
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WHY USE SECURITISATION AS A FINANCING TOOL…?
GENERAL APPROACH TO THE DEAL:
ASSET-BACKED SECURUTISATION IS AN ESSENTIAL PART OF HCFB FUNDING STRATEGY
The securitisation deal was a well-thought-out stepThe securitisation deal was a well-thought-out step
Planned well in advance Planned well in advance
Early in 2004 two international law firms were appointed for conducting legal analysis of the securitisation matters in Russia
Early in 2004 two international law firms were appointed for conducting legal analysis of the securitisation matters in Russia
Czech experience of Home Credit a.s. securitisation was thoroughly analyzed and taken into consideration
Czech experience of Home Credit a.s. securitisation was thoroughly analyzed and taken into consideration
The deal was intended to achieve:The deal was intended to achieve:
HCFB’s funding diversification HCFB’s funding diversification
Broadening HCFB’s investor base Broadening HCFB’s investor base
Raising long-term funding at a competitive cost Raising long-term funding at a competitive cost
Certainty of getting funds in a timely manner Certainty of getting funds in a timely manner
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HCFB DEBUT CONSUMER LOAN SECURITISATION:CASE STUDY
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HCFB provides unsecured loans mainly to finance the purchase of household goods and consumer electronics
POS loan characteristics:
HCFB POS LOANS ASSET CLASS PROFILE
Note: (1) as of 30 June 2006.
Translated at RUR 27.0789 = 1 US$.
by loan sizeby loan size by tenorby tenorby product typeby product type
consumer loan portfolio breakdown(1)consumer loan portfolio breakdown(1)
0-30% down payment Tenor of 4 – 24 months RUR denominated Fixed rate of interest RUR 3,000 – 200,000 (US$100 – 7,000 equivalent) Repayable in equal monthly installments High interest rate (average effective interest rate 38.7% p.a.)
Photo/video
2%
Electronics22%
Com puters13%
Furniture4%
Household appliances
24%
Mobile phones
28%
Other6%
12 months22%
6 months9%
8 months7%
10 months53%
4 months3%
16 months1%
Other2%
24 months3%
POS loans target audience: mass market
As of 30 June 2006 HCFB POS loan portfolio included approximately 4 million outstanding loans
Original average maturity – 11 monthsOriginal average maturity – 11 monthsOriginal average size – US$340Original average size – US$340
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TRANSACTION SUMMARY
ListingListing Irish Stock Exchange
IssuerIssuer Eurasia Structured Finance No 1, SA
Structure typeStructure type True Sale
DenominationDenomination EUR 125 000
Maturity / Call dateMaturity / Call date May 2012 / May 2009
Lead ManagerLead Manager BAYERISCHE HYPO- UND VEREINSBANK
Seller, Originator, Servicer
Seller, Originator, Servicer
Home Credit & Finance Bank
YieldYield A-1 Notes – 1mEuribor + 2.5%; A-2 Notes – 1mEuribor + 5.25%;
B Notes – 1mEuribor + 5%
Issue Size (Original Notes)
Issue Size (Original Notes)
Class A-1 Notes – EUR 100 000 000; Class A-2 Notes – EUR 13 500 000; Class B Notes – EUR 13 000 000
Transaction RatingTransaction Rating Moody’s: A-1 Notes – Baa2; A-2 Notes – Ba2; B Notes – Ba3
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TRANSACTION STRUCTURE DIAGRAM
ORIGINATOR/ SELLER/
SERVICER(HCFB)
ISSUER(ESF No1,
Luxembourg)
CASH MANAGER / HEDGE
COUNTERPARTY(HVB)
LEAD MANAGER, MANAGER
(HVB, PPF Banka)
HCFB Customers
I N V
E S
T O
R S
Standby Servicer
(IMB)
Trustee & Paying Agent
(Deutsche Bank)
Corporate servicer (SFM)
Sale of Receivables
Subordinated loan
Purchase Price
Preference Share
IR & FX Hedging
Class A1 Notes
Class A2 Notes
Class B Notes
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TRANSACTION KEY STAGES & TIMETABLE
March 2005
Launch of Feasibility study
September 2005
Structure Note finalized, other third parties engaged: Trustee, Corporate
servicer, Rating agency, etc.
May 2005
Key advisors appointed
December 2005
Signing & Closing
October 2005
Data analysis, system testing & administrative processes review
completed
Documentation drafting & transaction preparation
Feasibility study & Structuring Execution
Feasibility study was crucial for understanding Russian tax & legal environment, proper planning and coordination
Structuring was the most time consuming stage and took much longer period compared to other funding transactions
Execution stage involved not only extensive paperwork, but also systems adjustment and changes in operational processes
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LEAD MANAGER & KEY ADVISERS ENGAGEMENT
Experience in ABS deals internationally and in CEE countries, especially in structuring & executing “first in the marketplace” deals
Experience in ABS deals internationally and in CEE countries, especially in structuring & executing “first in the marketplace” deals
Key points HCFB considered:Key points HCFB considered:
Past experience of HC Group/ PPF Group Past experience of HC Group/ PPF Group
Particular people involved in the deal Particular people involved in the deal
Having only one investments bank during the Feasibility Study & Structuring stages proves to be much more efficient in the newly developing Russian securitisation market …
Key advisors to the deal were appointed in two phases: feasibility study and structuring & execution
Strong knowledge of local specifics Strong knowledge of local specifics
This approach allowed HCFB to manage transaction in time & cost effective way! This approach allowed HCFB to manage transaction in time & cost effective way!
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FEASIBILITY STUDY & STRUCTURING
INTERNATIONAL EXPERIENCEINTERNATIONAL EXPERIENCE LOCAL SPECIFICS KNOWLEDGELOCAL SPECIFICS KNOWLEDGE
ISSUES FOR STRUCTURING SOLUTION
Transaction RatingTransaction Rating
On-shore vs off-shore SPVOn-shore vs off-shore SPV
Clean True Sale legal opinionClean True Sale legal opinion
Hot Standby servicer solutionHot Standby servicer solution
Tax neutralityTax neutrality
Hedging technologyHedging technology
Commingling risk of Originator – A2 tranchCommingling risk of Originator – A2 tranch
Subordinated loan mechanicsSubordinated loan mechanics
STRUCTURE
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LANDMARK HEDGING STRUCTURE
RUR denominatedshort-term Receivables with fixed interest rate
EUR denominated long-term Notes
with floating interest rate
rolling programme of EUR – RUR FX Swaps
split into 10 Swaps within a month
market rates for a variable size and duration to maturity
rolling programme of EUR – RUR FX Swaps
split into 10 Swaps within a month
market rates for a variable size and duration to maturity
rolling programme of RUR Interest Rate Swaps
duration to maturity of up to nine months with monthly payment dates
RUR notional amount declining by reference to a fixed amortization schedule
rolling programme of RUR Interest Rate Swaps
duration to maturity of up to nine months with monthly payment dates
RUR notional amount declining by reference to a fixed amortization schedule
FX HedgingFX Hedging Interest Rate HedgingInterest Rate Hedging
Benefits:Benefits:
Key objective to match asset & liabilities profiles is achieved
Rolling structure avoids back-to-back element and gives zero credit cost
Long-dated outright cross-currency swap is avoided
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EXECUTION
Russian Antimonopoly Service approval
Sovereign level rating for A1 Notes obtaining
Russian currency control issues
Standby Servicer solution
MAJOR CHALLENGES - TO HANDLE “LAST MINUTE” ISSUES
Extensive transaction documentation preparation (over 20 contracts were signed)
Offering Circular completion & Notes Listing
Company’s systems adjustment & certain changes in operational processes
Transaction discussions with authorities (Russian Antimonopoly Service approval, Luxembourg tax issues, etc.)
Rating obtaining process
Closing of the deal was achieved on time and within the planned budget !Closing of the deal was achieved on time and within the planned budget !
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DISTRIBUTION
HCFB PLACEMENT STRATEGY:
certainty of getting funds during the booming New
Year buying season
rather than road-show approach generally used in the Eurobond market
PRE-PLACEMENT CONCEPT
Lead Manager and Manager provided
FULL UNDERWRITING COMMITMENT
for Class A1, Class A2 and Class B Notes
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SUMMARY
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LESSONS LEARNED
Securitisation involves a variety of different aspects: legal & tax environment, accounting, operational procedures, IT, HR …
A diverse rage of external and company’s specialists from different levels worked on the transaction
Securitisation changes the entire work of the company: business processes, systems, reporting, etc.
Securitisation was a completely new and important experience for HCFB, which will be leveraged upon in future transactions…
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TRANSACTION CREDENTIALS & PUBLICITY
FIRST EVER SECURITISATION OF RUBLE ASSETS
FIRST PUBLIC SECURITIZATION OF CONSUMER LOANS IN RUSSIA
“HCF returns with rouble ABS breakthrough, via HVBHome Credit & Finance Bank notched up a second first in the European ABS market last Friday, when it closed the first securitisation of rouble-denominated assets…”
EuroWeek, December 16 2005
“CAPITAL MARKETS & COMMODITIES: Russia achieves loan deal milestoneRussian securitisation deals are set to take a leap forward following the conclusion of a groundbreaking near-€300m deal, according to bankers and lawyers.Home Credit & Finance Bank, a Czech-owned, Russian consumer finance company, has completed the first securitisation of domestic Rouble assets from a portfolio of unsecured, small-ticket consumer loans….” Financial Times, Dec 14 2005
Best Securitisation of Emerging Market Assets
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TO BE CONTINUED…
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QUESTIONS & ANSWERS SESSION
THANK YOU!