On 15 December 2016, a team drawn from the Banking and Finance, Capital Markets practice and the Tax practice at EPAM successfully completed their work to provide comprehensive legal support for Bank Saint Petersburg’s first mortgage asset securitisation deal, with a total value of RUB 3.7 billion.
The transaction involved the sale of the Bank Saint Petersburg’s portfolio of mortgage loans to a special purpose vehicle (a mortgage agent) and the subsequent issue of bonds backed by mortgage collateral comprising prime mortgages. Credit support for the bond issue was achieved through overcollateralisation of the loan portfolio, creation of the mortgage agent’s reserve funds, provision of a guarantee from the Agency for Housing Mortgage Lending, and a put option to sell defaulted mortgage loans in the amount of up to RUB 121.4 million from the mortgage agent to Bank Saint Petersburg.
The bonds were offered to an unlimited number of investors via open subscription on the MICEX.
One of the features of this transaction was the single-tranche structure, in contrast to the two- or three-tranche structures typical on the Russian capital market, i.e. structures where at least two types of bonds are issued (junior and senior). Here the junior tranche was absent, which was achieved by including in the structure of the transaction a loan provided by Bank Saint Petersburg to the mortgage agent. In effect, the loan replaced the junior tranche bonds.
Another notable feature of the transaction was the inclusion of two alternative bond placement options in the mortgage agent’s issuance documentation (i.e. (1) collection of bids at a fixed coupon interest rate and subsequent determination of the placing price, and (2) collection of bids at a fixed placing price and subsequent determination of the coupon interest rate), which allowed the mortgage agent to take into account the market conditions at the time of bond placement to make the best choice regarding how to place the bonds.
What made this transaction stand out from others was the team’s use of modern, integrated solutions. The Firm succeeded in developing mechanisms for the voluntary and mandatory repurchase of defaulted mortgages from the mortgage agent by Bank Saint Petersburg, carried out both on a regular basis and at the discretion of Bank Saint Petersburg.
Another innovation was the creation of a legal mechanism to guarantee the mortgage agent the full placement of its bonds even before the registration of the issue by the Bank of Russia.
Legal support was managed by a team from the Firm’s Banking & Finance, Capital Markets practice under the leadership of partner Dmitriy Glazounov, and including Senior Associate Oleg Ushakov and Associates Maxim Baryshev and Vladimir Goglachev. The Tax practice, headed by Sergey Kalinin, advised on tax matters.
