investment insurance for securitizations and structured finance deals

1MULTILATERAL INVESTMENT GUARANTEE AGENCY WORLD BANK GROUP

Investment Investment Insurance Insurance for Securitizations for Securitizations and Structured and Structured Finance DealsFinance Deals

SME AssetSME Asset--Backed Financing Instruments: Backed Financing Instruments: Opportunities in Europe Opportunities in Europe Bratislava, May 15Bratislava, May 15--16, 200816, 2008


Contents

Introduction

Role of Political Risk Insurance in improving transaction ratings

Key features of ABS and structured finance transactions insured by MIGA

– MSF Funding (Brazil) October 2000

– BALAEF mortgage securitization (Latvia) December 2004

– BTA Ipoteka mortgage securitization (Kazakhstan) February 2006 and March 2007

– Autopistas Del Nordeste project (Dominican Rep.) February 2006


Who is MIGA?

Multilateral Investment Guarantee Agency

Member of World Bank Group

Founded 1988

172 Member Countries

Mission

Encourage Foreign Investment through issuance of Political Risk Guarantees


When PRI most relevant?

PRI most relevant• Domestic assets: consumer loans

and leases, residential mortgages, receivables, SME loans etc.

• Internationally issued securities

INTRODUCTION

Future flowsWorkers remittances

Domestically Issued Securities

Domestic Assets

Consumer loans and leases, residential mortgages etc.

Internationally Issued Securities


The Issue of the Sovereign Ceiling

Risk layers affecting securitization in new markets

Assets

Structure

Systemic: Macroeconomic/Legal

Convertibility, Expropriation

Source: Moody’s “Securitization in New Markets”

CROSS-BORDER SECURITIZATION


The Issue of the Sovereign Ceiling

PRI makes sense when the “local currency rating”(intrinsic value) of the underlying pool of assets is higher than the foreign currency rating of the sovereign.PRI can bridge gap to desired rating

Assets Credit Quality

Structural Credit Enhancements

Systemic risk

Legal risk

Country Foreign Currency Rating

Aaa

Local Currency Guidelines Rating

Wrap

PRI

Source: Moody’s “Securitization in New Markets”

Intrinsic Value is

higher than Sovereign

Ceiling

Sovereign Ceiling

CROSS-BORDER SECURITIZATION


Economic Benefit of PRI

Coupon without PRI

Coupon with PRIMIGA Premium

Benefit to Issuer/Originator


Political Risk Insurance

The coverage requirements will vary

RisksRelated to currency flows, assets, government regulations or breach of contract

AmountHow much? For Interest or Principal? Or for both P and I?

TenorHow long?

MIGA’S ROLE


Types of Political Risk Coverage

Protect against losses arising fromCurrency transfer restriction and inconvertibility– inability to convert local currency into forex for transfer outside

the host country

– excessive delays in acquiring forex

Expropriation– nationalization and confiscation– creeping expropriation, partial expropriation (limited coverage)– expropriation of funds only is a possibility– non-discriminatory measures of general application not covered

War and civil disturbance– damage/disappearance of tangible assets due to war or civil

disturbance (including revolution, insurrection, coups d'état, sabotage, and terrorism)

– business interruption when investment is a total lossBreach of Contract – inability to enforce an arbitral award against the Host

Government


RATING AGENCY

MIGA works with rating agency to customize political risk insurance coverage

ISSUER/ARRANGER


RATING AGENCY

Timely paymentMIGA works to customize policy

Waiting periods

Liquidity facility to bridge payments during the waiting periods

Ability and willingness to payMIGA explains coverage to Rating Agency

MIGA’s status as a multilateral: Developmental Goals


EXAMPLE 1

Securitization ofLease Receivables

MSF Funding

BRAZIL

CLOSED OCTOBER 2000


Project Summary

Securitization of loan and lease receivables from financing of medical equipment in Brazil

MIGA Solution

$90m coverage for principal and interest

Transfer Restriction and Expropriation of Funds

Results

Notes lifted 6 notches above sovereign rating B2/B+/BB- A2/A/A

Lower all-in financing costs


US

MSF Brazil

MIGA’scoverage

loans and leases

100% ownership

MSF Holdings

Investors(institutional investors,

pension funds)MSF Funding

Borrower(local hospitals)

US

Brazil

loanpayments

interestand principal

payments

paymentflows

MSF BRAZIL

Project Structure


Structuring Solutions

First cross-border hard asset securitization in Brazil

First example of MIGA and IFC both supporting a capital market transaction (IFC bought a mezzanine tranche).

First PRI supported transaction to be rated by all

three agencies (Moody’s, S&P and Fitch IBCA)

Unprecedented upgrade of 6 notches above the sovereign ceiling

Awarded Structured Finance International “Best

Securitization of Emerging Market Assets”


EXAMPLE 2

Securitization ofResidential Mortgages

LATVIA

CLOSED DECEMBER 2004


Project Summary

$63.5m mortgage securitization in Latvia

1st RMBS in Central/Eastern Europe

MIGA Solution

$10.5m coverage for Interest only on the Senior tranche

Transfer Restriction and Expropriation of Funds

Results

Senior notes lifted 3 notches above sovereign ceiling (A2 Aa2)

Improved pricing, tenor, capacity


Baltic American Mortgage Holdings

EquityUS$.5M

MIGA PRI

TRANSACTION STRUCTURE

US$60.5MPrincipal & Interest US$3.6M US$1.2M

SENIOR NOTESInstitutional Investorsfrom US (Senior Notes), IFC (US$5 M)

MEZZANINE NOTESIFC (mezzanine)

SUBORDINATED EQUITY

Baltic American Enterprise Fund

(equity)

MIGA PRI

Mortgages

US$10 million, 18 months of Interest

Baltic American Mortgage HoldingsTrust 2004 – 1 (Issuer)

LATVIA

Paym

en

tsUSA

Baltic American Mortgage Company

(Originator-Servicer)

MortgagePortfolio

MortgagePayments

$63.5M THE PROJECT



18 months of interest coverage only sufficient to upgrade the Senior tranche by 3 notches.

Timeliness of payment is key – the total claim process reduced to 87 days to meet the Rating Agency requirements


EXAMPLE 3


BTA Ipoteka

Kazakhstan

Phase 1 - Warehousing

CLOSED FEBRUARY 2006


Project Summary

$150m cross-border mortgage-backed securitization in Kazakhstan

MIGA Solution

$75m coverage of principal and interest for the warehouse facility

Transfer Restriction and Expropriation

Results

Credit enhancement necessary to preserve the rating of the multi-seller conduit (rated A1+)

1st cross-border mortgage-backed securitization in Kazakhstan and the CIS


Originator:BTA Ipoteka

Issuer: First Kazakh

Securitization Company BV

Commercial Paper

Investors

Commercial Paper Issued

USD Proceeds

Pool of Mortgages (Customers)

Mortgage Certificates

ABN Amro Kazakhstan

ABN Amro Bank

Obligation to pay mortgage principal and interest

TRANSACTION STRUCTURE: WAREHOUSE FACILITY

USD/Local Currency RepaymentsNew & Existing Mortgages

Conversion & Transfer of Repayments

USDRepayments

Purchase Price

New Mortgages

ShareholderLoan

MIGA PRI

Netherlands

Kazakhstan



Coverage for full Expropriation including inability to exercise collateral (foreclose on mortgages)

Coverage applied to a warehouse facility and designed/sized to preserve the rating of a multi-seller conduit which is funding the facility.

The coverage uses a flexible revolving mechanism to account for the facility drawdown and potential fluctuations.


EXAMPLE 4


BTA Ipoteka

Kazakhstan

Phase 2 - Kazakh Mortgage-BackedSecurities 2007-1 B.V.

CLOSED MARCH 2007


Project Summary

Securitization of first-ranking residential mortgage loans denominated in Kazakh Tenge (KZT) and indexed to USDThe transaction totals US$141.4m

MIGA SolutionCoverage for six months of scheduled payments of interest on the mortgage portfolio up to US$10.2 million against Transfer Restriction (T&C) and Expropriation

ResultsOne notch rating increase, BBB+ to A-(Fitch) due to T&C coverageFirst publicly rated RMBS transaction from the Republic of Kazakhstan


Originator:BTA Ipoteka

First Kazakh Securitization Company BV(Loan Notes

Issuer)

Pool of Mortgages (Debtors)

Mortgage Certificates

ABN Amro Kazakhstan

(Kazakhstani AccountBank)

Kazakh Mortgage-

Backed Securities

2007-1 B.V.(Issuer)

TRANSACTION STRUCTURE: TERM DEAL

Interest and Principal Payments

Conversion & Transfer of Payment

Class A to C Loan Notes

Purchase Price

Off-shore

Kazakhstan

MIGA PRI

Class A to C Notes


Fitch RatingsRMBS/Republic of KazakhstanNew Issue Report, April 2, 2007

Kazakh Mortgage-BackedSecurities 2007-1 B.V.

• The transaction benefits from a political risk insurance policy provided by the Multilateral Investment Guarantee Agency (MIGA, ‘AAA/F1+’), a company of the World Bank Group that provides liquidity to the transaction in the event certain transfer and convertibility risks (T&C) were imposed.

• As the class A notes are rated above the Kazakhstan country ceiling of ‘BBB+’, the issuer has entered into a political risk insurance contract with MIGA (‘AAA/F1+’) to provide coverage for six months of scheduled payments of interest on the mortgage portfolio in the event the Kazakhstan government imposes certain T&C restrictions.


International Securitisation Report7 December, 2007

Kazakh Mortgage Backed Securities 2007-1 is awarded RMBS Deal of the Year - Europe

Kazakh Mortgage Backed Securities 2007-1 unlocked the potential of Kazakhstan's booming mortgage market. Taking its structural innovations and wide distribution into account, Kazakh Mortgage Backed Securities 2007-1 is ISR's RMBS Deal of the Year. There have been several securitisation transactions from Kazakhstan in recent times in the form of future-flow deals, but in March 2007 ABN AMRO took a huge step by issuing the country's first true-sale RMBS, Kazakh Mortgage Backed Securities 2007-1 (KMBS 2007-1). The transaction incorporated a political interest payment contract provided by the Multilateral Investment Guarantee Agency (MIGA), a subsidiary of the World Bank that covers transfer and convertibility risk, as well as expropriation risks. KMBS was the first emerging market transaction to include expropriation risk, which in turn enabled higher ratings.


Fitch RatingsKazakh Mortgage-BackedSecurities 2007-1 B.V.Press Release, January 23, 2008

Fitch Ratings has affirmed today the ratings on all the notes of Kazakh Mortgage Backed Securities 2007-I B.V…. Despite the recent revision of the Outlook of the Republic of Kazakhstan's Long-term Issuer Default Rating (IDR 'BBB') to Negative from Stable, the Outlooks of the notes remain Stable. The performance of Kazakh Mortgage Backed Securities 2007-I has been strong, with negligible arrears and significant payment rates…It is likely that a downgrade of the country's IDR would also result in the lowering of the Country Ceiling ('BBB+'), reflecting an increased risk of the Kazakhstan government imposing restrictions on the transfer and convertibility (T&C) of the currency in a stressed environment. However, Fitch believes that the political risk insurance (PRI) contracted with the Multilateral Investment Guarantee Agency (MIGA, a company of the World Bank Group rated 'AAA'/Outlook Stable/F1+') is still sufficient to protect against this increased risk. Under the PRI, MIGA would pay out up to USD10.2m of interests due under the mortgage portfolio in the event of any T&C restrictions being imposed on the currency… This is therefore sufficient to cover the 12 months interruption of the transaction flows envisaged by Fitch in its criteria for notes rated two notches above the Country Ceiling.


Thank you!

Olga SclovscaiaSenior [email protected]. +1.202.458.2823

For more information,visit www.miga.org

mailto:[email protected]

investment insurance for securitizations and structured finance deals

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