A&O advises on landmark funding source for charities

Allen & Overy

(A&O) has advised on a landmark capital markets deal that the firm says provides a “big step” in creating a funding source for charitable organisations that does not rely on receiving donations.

The magic circle firm, led by securitisation partners Christopher Bernard and David Shearer, acted for Morgan Stanley as arranger on the $99m (£53.23m) BlueOrchard Loans for Development 2006-1 (Bold). The deal allowed the microfinance sector to tap the international capital markets.

A&O provided its advice on a part-pro bono basis because of the social benefits of the transactions.

Bernard told The Lawyer: “This deal is another step in creating a liquid market for this type of transaction. It’s also a big step in creating a funding source for charitable organisations through the capital markets, where they aren’t relying on handouts from donors.”

Shearer added: “The key in transactions of this nature is finding practical solutions which are workable for the institutions involved and acceptable to the capital markets. We believe that this transaction achieves that.”

The transaction involved the securitisation of a portfolio of unsecured loans by BlueOrchard Finance to 21 microfinance institutions (MFIs) in 13 countries – namely Albania, Azerbaijan, Bolivia, Bosnia, Cambodia, Colombia, Ecuador, Georgia, Mexico, Mongolia, Nicaragua, Peru and Russia.

The MFIs provide loans and other financial services to micro-entrepreneurs in those countries that have limited access to other sources of credit.

Bernard said the number of issuers from different countries made it a landmark issue as well as adding to the complexity of the deal.

The A&O team featured lawyers from four different offices – London, Luxembourg, Amsterdam and Moscow. Partners Henri Wagner, Richard Tredgett and Morgan Krone worked on the deal alongside Bernard and Shearer.

The Bold team is also in the process of listing it on the Irish Stock Exchange. It is thought to be the first time a transaction in this asset class has sought a listing.

The notes were denominated in US dollars, sterling and euros and were offered in two tranches, Class A and Class B. The notes were bought by foundations and institutions that are typical investors for this type of transaction.

Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden, a Dutch development bank, purchased the Class B notes.