Baker & McKenzie Advises DeltaCredit on a Pioneering Covered Bond Transaction

 

Moscow, Russia, 22 November 2012 – Baker & McKenzie has advised DeltaCredit Bank (the “Issuer”) on its RUB5 billion domestic mortgage covered bond transaction. This is the first ever covered bond transaction out of Russia receiving a rating above the credit rating of the issuer (guarantor). Moody’s Investors Service has assigned a provisional Baa1 long-term rating to the mortgage covered bonds, which is two notches above the credit rating of DeltaCredit. The rating takes into account the structure of the transaction, the credit strength of the Issuer and the value of the cover pool in the event of the Issuer's default.

The covered bonds were issued in accordance with Federal Law No. 152-FZ “On Mortgage Backed Securities,” dated 11 November 2003 (the “Mortgage Securities Act”) and benefit from the Issuer’s obligation to pay interest and principal on the bonds and, if the Issuer defaults, the economic benefit of a collateral pool (the cover pool), which is ring-fenced and does not form part of the Issuer’s bankruptcy estate.

“We are very excited about this transaction,” said Vladimir Dragunov, partner and head of the Russian structured finance practice at Baker & McKenzie Moscow. “Typically, Russian covered bond transactions have been rated on the basis of the credit rating of the issuer or guarantor without taking into account the underlying structure of the transaction, the robustness of the Mortgage Securities Act and the value of the cover pool. A lot of work was put in on this deal to provide the necessary legal comfort on the transaction structure and the operation of the Mortgage