LatinFinance - Special Edition - August 2013 - 28

1
THE
EVOLUTION
OF THE
MARKETS
1988-2013

When aeropuertos argentina
examined its options for a
debt market debut in 2010,
international interest in bonds
out of the country was limited.
the sovereign was negotiating
Paris club debt and attempting
to swap bonds it had defaulted
on nine years earlier. another
corporate borrower, food
products-maker arcor, had
issued debt in november
2010. But it benefited from
having extensive international
operations.
So aa2000 also turned to
its comparative advantage:
it offered a bond backed by
cash flows from airport usage
fees, which would be collected
offshore.
the fact a high proportion of
those revenues were in dollars
was among the selling points
to investors, says Raúl francos,
cfo of aa2000.
the $300 million 10 non-call
five-year bond was five times
subscribed, and outperformed
other argentine credits in
the year ahead. Without
securitizing the deal against
these future flows, raising cash
would have been tough.
the deal characterizes one
part of the history of structured
and secured financing in
latin america over the past
quarter century. Hampered
by economic turmoil beyond
their control, companies have
turned to secured financings
to raise the cash they would

Secured financing has helped Latin companies access capital in the
toughest of climates when markets otherwise prevented it. It is also proving
useful when times are smoother. By Katie Llanos-Small

Structured finance
For better, for worse

STILL MOVING: Pemex securitized export receivables to raise
funding in the 1990s

otherwise be denied.
in the late 1990s, PDVSa and
Pemex used export receivables
to securitize borrowings.
PDVSa’s $1.8 billion trade in
may 1998 not only stretched
to a 30-year tenor, but it was
rated several notches above the
sovereign. a few months later –
and after Russia had defaulted
on its debt, sending emerging
markets into chaos – Pemex
used a similar structure. its $1.5
billion two tranche deal also
found favor among the ratings

28 l atinfina nce.com - 25 Years - August 2013

agencies, with a triple-a label.
airlines and banks
frequently securitized their
international receivables in the
mid-late 1990s. even phone
companies participated,
securitizing payments due for
long distance calls.
“these were all dollarbased receivables, future
flow receivables,” says mike
morcom, head of latin
american agency & trust
sales at citi. “and they were
a mainstream for corporate
financing.”
later, banks turned to future
flow securitizations to raise
cash. a stand-out was Banco do
Brasil’s securitization of future
remittances from Brazilian
workers in Japan, which it sold
in 2001. But simpler forms of
diversified payment right (DPR)
securitizations – bonds backed
by all the receivables coming
through the international
settlement system – became a
popular funding strategy in the
late 1990s and early 2000s.
Second wave
DPR securitizations continue
today, as do export receivable
securitizations. But as many
latin economies left behind
the turmoil of the 1990s –
and as corporate borrowers
gained a stronger following
among debt investors – the
need to use export receivable
securitizations simply to raise
cash fell.

“in the early 2000s the
new issuance of export deals
began to dry up as a lot of
the corporate clients doing
future flow securitizations had
graduated to unsecured dollar
funding,” says morcom. “a
company like Vale that used to
do future flow deals no longer
had the need for that type of
financing, as they were able to
go out unsecured on favorable
terms. So it didn’t make as
much sense.”
a second phase of structured
financing emerged as
borrowers looked for different
benefits from the asset class.
in colombia and mexico, for
example, lenders made heavy
use of RmBS to shift risk off
their balance sheet and make
space for more mortgage
origination.
mexican mortgage-backed
securities started being sold
in 2003. Government-backed
lender infonavit, which sold its
first deal in 2004, is one of the
few RmBS issuers present for
most of the market’s existence.
the face of mexico’s
securitization market has
changed sharply since infonavit
debuted. non-bank lenders
known as sofoles surged in
the years leading up to the US
subprime crisis, selling triple-a
rated securitizations with
little overcollateralization but
backed by monoline insurers.
When those insurers ran
into problems at home in
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