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Moody’s: New Russian securitization law is credit positive for Russian structured finance

18.06.2014 09:30 / MIFC

The new Russian structured finance legislative platform is credit positive for the Russian structured finance market, says Moody`s Investors Service in a report published today. The new framework contains the key elements required for a broad range of securitization and project finance structures and will provide onshore alternatives to securitization transactions that were previously possible only via offshore issuing vehicles.

"The new legislation limits the risks associated with a number of relevant laws and provides a clearer and more comprehensive legal framework for the issuance of domestic Russian structured finance transactions", says Igor Zelezetskii, a Moody`s Vice President - Senior Analyst.

"Many of the amendments are broadly consistent with similar legal provisions in established structured finance markets and some of them, such as the bankruptcy remoteness framework for SPEs, will have positive credit implications."

The new legislation also introduces new types of special purpose entities (SPEs), as well as a framework for bankruptcy-remote SPEs. The laws prescribe bankruptcy remoteness criteria for SPEs, including prohibitions on borrowing from private individuals, except through issuance of bonds and reducing charter share capital.

"In line with the powers granted to SPEs, mortgage agents now have broader rights and obligations necessary for the performance of their activities. The legislation explicitly states that a mortgage agent can both purchase cash receivables and issue notes with collateral, removing any uncertainty regarding the issuing capacity of mortgage agents", says Mr. Zelezetskii.

Furthermore, the legislation outlines procedures for the replacement of a bankrupt SPE and the transfer of pledged collateral to a new issuer. It also establishes professional standards and limitations for SPEs, ensuring their independence from the originator and SPE shareholders.

In addition, the new legislation strengthens two elements essential to the securitization of assets backed by movable property. It improves registration and access to information relevant to the movable property collateral. It also increases the protection of bona fide purchasers against third parties` claims.

"Previously, Russian law did not provide clear protection to a purchaser of collateral. The new law tries to introduce protection through encouraging greater transparency of the transfer and registration of movable property", adds Mr. Zelezetskii.

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