Zurich’s unit offering political risk and trade credit insurance in emerging markets has recently provided political risk insurance (PRI) for a capital markets transaction in Ukraine. This is the first time that political risk insurance was utilised in Ukraine to manage the unique risks of a capital markets transaction, claims Zurich.
Zurich is supporting a US$134.1mn Class A Notes issue of residential mortgage-backed securities (RMBS) originated by PrivatBank and issued by Ukraine Mortgage Loan Finance No1.
The Zurich insurance policy protects against the risks of currency inconvertibility and expropriation of funds, providing coverage equal to 18 months of interest payments. In addition, a PRI reserve fund was established that will provide six months of interest coverage for the first 180 days after the occurrence of a political risk event.
“This groundbreaking transaction, the first public RMBS issue out of Ukraine, highlights the importance of political risk insurance in helping make an issue more attractive to investors concerned about political risk and market volatility,” says Daniel Riordan, executive vice-president and managing director for Zurich’s emerging markets unit. “PRI support can help elevate bond ratings to investment grade, often above the country’s sovereign currency rating.”
The Class A Notes of this issue were given investment-grade ratings(Baa3/BBB) by both Moody’s and Fitch, above both PrivatBank’s long-term debt rating (Ba2/B) and Ukraine’s foreign currency debt rating (Ba3/BB-). UBS was the transaction’s sole arranger and USI Southwest served as insurance advisor.
Zurich underwrites political risk and trade credit insurance in emerging markets for financial institutions, multinational corporations, investors, exporters and infrastructure developers from offices in Washington DC, Barcelona, London, Paris, Hong Kong, Tokyo and Sydney. Zurich is a member of the Berne Union, an international union of credit and investment insurers.