Latin Finance - March 2008 - 6

Structured Finance Local Market Deepens Global jitters have stifled activity in the local markets, driving issuers in Mexico, Brazil and Chile to the sidelines. Bankers in the region say volumes will likely pick up from the low levels registered in the first couple of months. But few issuers are in a hurry to price transactions. Save for Mexico’s Sofoles, whose business depends on frequent market taps, corporate borrowers are willing to wait for stability. Some Mexican investors warn 2008 will see shrinkage in MBS unless borrowers adjust to a new global reality. “Credit spreads have widened all over the planet, but Mexican issuers still want to come out with the same spreads,” says Juan Carlos Pliego, CIO of Afore Azteca. Lack of confidence in ratings agencies and monolines also hampers activity. Mexican investors did get to sample two high quality assetbacked issuers – supranational utility Comisión Federal de Electricidad (CFE) and the Distrito Federal (DF). Both placed securitizations of peso loans from foreign banks. CFE issued $182 million in peso denominated 10-year notes, rated AAA/Aaa, at par to yield 35 basis points over the 91-day Cetes, which was quoted at 7.44% on the day the deal priced. The notes, which priced in line with guidance, are backed by loans to CFE from ING, which led the issue. DF’s sale of $645 million in 40year local bonds (AAA/Aaa) came at TIIE plus 20 basis points, in line with guidance. TIIE was quoted at 7.92% on January 31, when the deal was pushed through. IXE and Actinver led the sale, backed by a seven billion peso loan Dexia made to the capital. Meanwhile, the Argentine market saw 20 ABS deals totaling $216 million in the first two months. That was a 9% increase yearon-year, according to Dealogic. The transactions were predominantly securitizations of credit card receivables put into fideicomisos, or local trusts. Banks lending to consumers and credit card companies take the receivables and move them off balance sheet. Deals have ranged between $2 million and $30 million in size the past two months, while tenors are mostly in the two-year area. Coupons mostly float over inflation, though some deals carry fixed rates from 12% to 22%. The largest structurer by far for these deals is Banco de Valores, though shops like Patagonia, HSBC and Comafi are also active. a securitization fund with various tranches to provide a higher risk/return profile. But for now, investors buy directly into a single underlying credit, he adds. Another executive representing a US-based shop in São Paulo adds that the buyside is equipped to analyze these credits. “Many foreign investors are familiar with commodities and they already understand the collateral behind these notes,” he says. At the moment, however, his shop is collecting a series of CDCAs that will eventually be offered to local investors. Credit rights for these deals come from loans to Brazilian producers of anything from cattle to soy to coffee. An industrial farmer takes out a CPR with a trading company to finance the harvest. The trading company then sells a collection of CPRs to a third party to create a CDCA. Financial intermediaries, including some Wall Street banks, then either structure the sale of portions of the pool, or buy them and repackage them for offshore buyers. The market is still in an incipient stage, but it could become more popular as interest in unique, high yielding assets rises. Responding to Regulation In Ecuador, laws are being adjusted to make local corporate debt issuance more attractive. That may spur a pickup in asset- backed borrowing, says Ismael Velez, head of corporate finance at Picaval, the brokerage and banking unit of Banco Pichincha. Ecuadorian companies hold an estimated $7 billion in offshore debt, according to the Central Bank. Seeking, among other things, to migrate some of that to domestic investors, the government is expected to approve a tax exemption on interest expenses on locally issued debt with a maturity of more than a year. A final decision was expected by the end of February, says Velez. The move may not alter foreigners’ access to – or interest in – Ecuadorian corporate debt, but it should provide local borrowers with more financing and refinancing alternatives, says a local banker. “There are many companies that are looking at alternatives to refinance their foreign debt using local markets,” says Velez. Buyers for these transactions are generally local pension funds. Picaval is working on three securitizations, the largest an offering of notes backed by credit card receivables belonging to Diner’s Club. That could reach $50 million in size, says Velez. A second offering would be an auto-loan deal for GMAC worth around $30 million. Last September, Picaval structured a $50 million securitization of GMAC-issued auto loans. A $25 million Elsewhere, Brazilian structured finance shops are heard taking an two-year tranche came at a fixed 7.75%, while a $25 million interest in an emerging local asset class – agricultural commodity credit – and putting deals together for local and offshore investors. four-year tranche pays 9.00%, according to a report by the In one model, an international bank with a local office repackages Quito exchange. Both are rated local AAA. Meanwhile, in the coming months, the local Peruvian MBS for international investors a collection of Certificado de Direito de Crédito Agricolas (CDCA) or Cédula de Produto Rural (CPR), which market is expected to take off in earnest. Titulizadora Peruana, the newly created securitization shop owned by the IFC, Interbank, are rights to receive payments on short term loans made to agricultural producers. A deal can be worth up to $100 million and BCP, Scotiabank, and Titularizadora Colombiana, expects to yield 11% and higher in dollar terms, says a banker who is working structure at least $1 billion in domestic mortgages in the next three to five years. on this type of transaction. “We want to eventually securitize 30% of the total stock of “There’s demand from our foreign clients for these assets that help finance Brazil’s various harvests,” says Armando Marracini, an mortgages in Peru in the coming years,” says Marc Tristant, chief investment officer at the IFC in Lima. The total pool of Peruvian executive director at JPMorgan’s EM structured products group in São Paulo. Marracini says it might eventually make sense to set up mortgages is roughly $2.2 billion, he adds. LF Repackaging Commodities 6 LATINFINANCE March 2008

Latin Finance - March 2008

Table of Contents for the Digital Edition of Latin Finance - March 2008