Baker & McKenzie Advises on the First Russian Securitization of Consumer Loans

05.12.2013 Moscow, Russia, 5 December 2013 — Baker & McKenzie acted as transaction legal and tax counsel in the securitization of consumer loans of Home Credit & Finance Bank Limited Liability Company (“Home Credit Bank”). This is the first ever domestic securitization of consumer loans in Russia. 

RUB5 billion of Russian bonds were issued by a special purpose vehicle, HC Finance LLC, with a coupon rate fixed at 8.25 percent per annum for the first three years, which provided the bank with a favorable funding rate. The bonds offer a discount to the yield on the senior unsecured debt of Home Credit Bank and a slight premium over sub-sovereign bonds. Home Credit Bank provided a 3-year put-option to bondholders, thus offering investors an instrument with clear duration. The bonds have the benefit of a pledge of a consumer loans portfolio (satisfying various eligibility criteria) and have received two investment grade ratings from Standard & Poor’s and Moody’s (BBB, Baa3). The bonds were placed among a wide range of investors, including banks, pension funds and insurance companies. Importantly, the transaction structure allows the inclusion of the bonds into the Lombard List of the Russian Central Bank. 

The structure is similar in a number of aspects to a domestic mortgage securitization with one significant difference: instead of utilizing one special purpose vehicle (SPV), the structure employs two SPVs. One is HC Finance LLC, which issued the Russian bonds and provided a loan to the purchaser of the consumer loans (Eurasia Structured Finance No. 3 B.V.), a Dutch registered company (the “Purchaser”). The loan was used to purchase the portfolio of consumer loans. The consumer loans continue to be serviced by Home Credit Bank, which transfers all collections on the consumer loans to the Purchaser for the subsequent repayment of the loan and the redemption of the bonds. 

The use of two special purpose vehicles allows improved protection of bondholders’ rights compared to local mortgage securitizations, by virtue of international law (English law and Dutch law). In particular, the Purchaser is set-up as a “bankruptcy remote” entity and the portfolio of consumer loans is ring-fenced for the benefit of the bondholders. The consumer loans portfolio, as well as the bank accounts accumulating collections, are pledged by the Purchaser in favor of a security trustee, which acts in the interests of the bondholders and is obliged to enforce the security upon default. The structure allows the bondholders to continue collecting payments on the consumer loans after a default, so as to avoid a “fire sale” of the pledged portfolio, and therefore maximizes the potential recoveries for the bondholders. 

Home Credit Bank also provided a subordinated loan to the Purchaser to create the credit enhancement for the transaction and fund a reserve fund that covers coupon payments for up to six months.  

“This is a real breakthrough in the market,” said Vladimir Dragunov, partner and head of the Russian securitization and structured finance practice at Baker & McKenzie Moscow. “The transaction was structured under the current legal framework and allows the securitization of a wide range of assets (consumer loans, car loans, credit cards, SME loans, trade receivables, lease payments, etc.) and not only mortgages. The legislation and infrastructure related to securitization of non-mortgage-related assets is currently not developed. The adoption of the proposed securitization law, which would allow domestic securitization of non-mortgage-related assets, supported by various secondary legislation and further development of the infrastructure could allow at some point in the future the execution of similar transactions entirely in Russia. The structure implemented by Home Credit Bank has great potential as it already allows today the creation of a long term funding program for a variety of bank assets that can attract both Russian and international investors.” 

“We are very proud to have completed this exciting transaction,” said Simon H.P. Morgan, partner in the Russian securitization and structured finance practice at Baker & McKenzie Moscow. “In the course of this transaction we have resolved a number of intricate legal and tax issues in several jurisdictions: Russia, Netherlands and England. We are very pleased to have provided the client with efficient solutions and to have executed the transaction over a short period of time.” The Baker & McKenzie team included partners Vladimir Dragunov, Simon H.P. Morgan, Sergei Zhestkov (Moscow), Philippe Steffens (Amsterdam), Vincent Keaveny and Simon Porter (London). 

About Baker & McKenzie 
Founded in 1949, Baker & McKenzie advises many of the world’s most dynamic and successful business organizations through more than 4,100 locally qualified lawyers and 6,000 professional staff in 74 offices in 46 countries. The Firm is known for its global perspective, deep understanding of the local language and culture of business, uncompromising commitment to excellence, and world-class fluency in its client service. Global revenues for the fiscal year ended 30 June 2013 were USD2.419 billion. Eduardo Leite is chairman of the Executive Committee. ( 

About Home Credit & Finance Bank 
Home Credit & Finance Bank (Moody’s Ba3, Fitch BB) specializes in retail finance in Russia and Kazakhstan. HCFB offers its clients a wide range of credit products and banking services. The Bank’s client base comprises over 28.5 million clients. HCFB’s products are distributed through more than 88,000 points of sale in Russia and Kazakhstan. As of 30 September 2013, the Bank’s network comprised of 9,223 branches and offices and 1,323 ATMs across Russia and Kazakhstan. (

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