WestLB, once Germany’s third largest landesbank, passed into history at the beginning of July, dismembered into three pieces on the instructions of the EU. So the issue of an inaugural $175m via ZAO Raiffeisenbank’s new diversified payment rights (DPR) funding programme was a landmark in more ways than one. As well as being the first DPR-backed transaction out of Russia since the financial crisis began, it was also WestLB’s swansong deal.
The securitisation of financial future flows, or DPR, first emerged in the late 1980s as a form of secured funding for, typically, emerging market entities. The investors benefit from offshore security in the shape of hard currency payments into the borrower’s correspondent bank account in Europe or the US, thus avoiding transfer and convertibility risk. Since the hard currency is not coming out of the emerging market but is already trapped offshore, DPR transactions also largely mitigate the risk of sovereign interference. The result is that the deals can often be rated anywhere from one to four notches higher than the originator’s own rating, and higher than the sovereign itself. This allows cheaper finance and longer tenors than might otherwise be possible.
