Fitch servicing arrangement for Kazakh Mortgage Backed Securities 2007-1 remains under scrutiny
08.06.09 17:39
/Fitch Ratings, London-Frankfurt, June 4, 09, English translation of Fitch
Ratings/ - Fitch Ratings says today that BTA Bank's (RD) decision to cease
principal payments on its wholesale financial obligations has, so far, had no
detrimental impact on the RMBS transaction of its subsidiary BTA Ipoteka
(BTAI), Kazakh Mortgage Backed Securities 2007-1 B.V. (Kazakh MBS).
However, the servicer may need to be replaced amid the ongoing stress in
the Kazakh banking sector, and Fitch remains concerned about the negative
impact this could have on the transaction. Such a move would also mark the
first time that a Commonwealth of Independent States' structured finance
transaction experiences an exchange of the servicer.
Fitch downgraded Kazakh MBS's notes on 8 May 2009 on concerns over the
portfolio's future performance and the potential operational disruptions that
could be caused by replacement of BTAI as the servicer with Halyk Bank
(Halyk, rated 'B+'/Negative). As such, the transaction's ratings remain on
Rating Watch Negative (RWN). (For further information, see the 8 May
comment, entitled 'Fitch Downgrades Kazakh MBS 2007-1 B.V. Notes', which
is available on the agency's subscriber website www.fitchresearch.com (see
Russian version "Fitch downgrades Kazakh MBS 2007-I B.V. bonds" at
www.fitchratings.ru).
As of the present date, the trustee has not terminated BTAI's servicing of the
transaction. The trustee is contractually entitled to do so by giving notice to
BTAI and specifying a termination date. The trustee has informed Fitch that it
is monitoring developments, and particularly whether BTAI has continued a
daily sweep of collections to the issuer's offshore account.
Notwithstanding this contractual pre-arrangement and based on regular
conversations with BTAI, Halyk and the trustee, Fitch believes it would be
challenging to immediately replace the servicer in a short time frame. The
agency believes that the current exchange of information and data would be
insufficient for Halyk to perform this function effectively without the
cooperation of BTAI. BTAI has agreed to notify borrowers about the
assignment of loan claims and to initiate a redirection of payments if
requested by the trustee. If instead of BTAI, Halyk were required to do this, it
would foremost need debtors' contact details which it does not possess. In
addition, notification letters have not yet been prepared nor has an
alternative collection account been set up in the name of the issuer. The
redirection of borrower payments may therefore not be effected overnight,
which exposes the transaction to commingling risk. According to Fitch's
calculations, up to three months of payments may be lost before the
available credit enhancement is depleted to levels inconsistent with the
current ratings. If BTAI stopped its cooperation overnight, this assumption
would likely be tested.
In addition, Halyk would either need to use BTAI's software or, alternatively,
amend its own IT systems to administer the USD-indexed loans. While
existing agreements give Halyk the right to access BTAI's premises and
make use of its systems for a limited period of time, this could be difficult to
achieve. It would also not resolve the need to change Halyk's systems.
Halyk would also need to receive the physical credit files and review them for
completeness and for compliance with Kazakh regulations. As of the present
date, only the mortgage certificates are held with Bank Centercredit
('B'/Evolving) and as such are outside of BTAI's premises. However, Halyk
would need the physical credit files to enforce claims against borrowers. It's
also likely that Halyk would need to increase staff levels, which will cause
expense and take time, to handle the takeover of the documents.
Fitch understands that the transaction parties are negotiating the next steps
to be taken and the agency continues to monitor the situation closely.
Ultimately, the trustee will have to decide whether the servicing will be left
with BTAI, be handed over to Halyk in the near future, or whether Halyk will
be given more time to prepare the takeover, thus deferring the replacement
as long as BTAI continues to fulfil its contractual obligations.
If BTAI ceased passing collections to the issuer, the transaction would need
to use the available liquidity support to ensure the timely payment of interest
on the notes. As of the last payment date, the amount drawable under the
liquidity facility reached its floor of USD4.2m. Based on Fitch's calculations
this would be sufficient to cover up to 14 months of interest payments on the
notes.
BTAI used to repurchase distressed and restructured loans on its balance
sheet. It has limited this practice to repurchases sponsored by Samruk-
Kazyna, the national welfare fund. Loans eligible for the program are to
borrowers that own only one property of up to 120sqm of living space and
who are not in payment arrears. As such, Fitch expects that more losses will
be allocated to the transaction as delinquent loans will no longer be taken
back by the seller.
Kazakh MBS's ratings are as follows:
Class A (ISIN XS0293196266): 'BB+'; RWN; Loss Severity Rating 'LS-1'
Class B (ISIN XS0293196696): 'B'; RWN; Loss Severity Rating 'LS-1'
Class C (ISIN XS0293196779): 'CCC'; RWN; Recovery Rating 'RR4'.
Contacts:
Michael Hoelter, Frankfurt, tel.: +49 69 768076 236
Andrei Gozia, London, tel.: +44 20 7682 7263
Aksel Etingu, London, tel.: +44 20 7682 7135
Media contact:
Marina Moshkina, Moscow, Tel.: + 7 495 956 6904/9901
marina.moshkina@fitchratings.com
[2009-06-08]