Repackaging Note

Repackaging Note - a type of structured bond, the issuer of which is always a special purpose vehicle (SPV). The mechanism of such a bond is that the issuing company issues bonds secured by other securities, which provide the cash flow of the newly created security. The cash flow from the underlying securities is primarily directed to a third party, the swap counterparty. The swap part of the transaction allows to change the parameters of the underlying securities in terms of coupon, payment frequency, currency, maturity, etc. At the same time, the special purpose vehicle finances the purchase of the underlying securities from the proceeds from the sale of new bonds.

Advantages:

1. repackaging notes are most often issued on a "custom basis", which gives investors more flexibility in terms of their currencies, maturities, coupons, and credit rating. Hence, the risk profile can be fully customized according to investor preferences.

2. Such structures are standardized, which allows to quickly release several series in a row with minimal investor approval.

3. An issuer in the form of an SPV allows minimizing the risks of an increase in the debt burden on the actual issuer (or its groups) and isolating debt obligations through “repackaging”.

Disadvantages:

1. The main disadvantage of the repackaging program is the cost. Because it is a more complex structure than conventional structured products, there are more parties and documents involved, which will incur significantly higher costs for creation and ongoing maintenance.

2. Repackaging notes, due to their complexity and greater risk, are not available to most investors, since the very fact of “repackaging” is critically dependent on their needs.