Latin Finance - April 2008 - 54

guide securitization structure finance reviews; mortgage loans have fixed interest rates; and most properties are bought for primary residency purposes by firsttime home buyers. The sound fundamentals of Mexican ABS transactions are evidenced by the strong performance of the asset class. Since the first Mexican securitization in 2001, no Mexican ABS transaction has defaulted on any payment, performance across asset classes has been stable, and no material credit deterioration of any rated Mexican structured finance transaction has occurred (global AAA-rated monoclinewrapped deals excluded), despite the deterioration of consumer credit quality and performance in the U.S. Despite sound fundamentals, the effects of the subprime crisis have caused a general decline of liquidity in Mexico. Globally, liquidity has decreased as a result of heightened institutional risk aversion. Since multinational financial institutions play a prominent role in Mexico’s financial system, Mexico is experiencing a spillover effect from the global liquidity squeeze. The concentration of multinational players in the Mexican capital markets has impacted liquidity post subprime crisis, since these institutions are likely to have global instructions to reduce exposure to the financial sector and mortgage-backed securities in particular. This explains why a number of typically active institutional investors have withheld their participation. The Afores (administradoras de fondos para el retiro, or retirement funds administrators) that are part of large international institutions, for instance, may have cash to invest; however, the lack of recent participation from their side seems to confirm the general market consensus that they remain on the sidelines due to global directives. While it is clear that market conditions in 2008 are more challenging than in the recent past, there is a sliver of hope: On February 15, Metrofinanciera came to the market with a UDI 261.98 million (approximately $97 million) BORHIs issuance priced at 177 basis points over the UDI benchmark. Although the transaction priced wider than similar deals in 2007, it was more than 2.7x oversubscribed, which is a sign that investor appetite remains, but at adjusted pricing levels. The Metrofinanciera deal cracked the market open in 2008, and another non-structure deal followed in the next couple of days, extending the momentum in the local capital markets. On the structured side, there are other deals that priced in March, including RMBS from banks, and a construction loan securitization from Su Casita. Looking ahead in 2008, we expect to see regular RMBS issuance from Infonavit (Mexico’s largest mortgage institution) as well as from other commercial banks, which recently began to tap the Mexican RMBS market. One effect of the liquidity crunch on Mexican issuers is that it has become increasingly challenging for them to place mezzanine classes in structured transactions. Since much of the demand for these riskier (and therefore higher yielding classes) classes has been fueled by offshore investors (mostly hedge funds), the yields which investors are demanding for these securities have increased significantly. Mexican issuers are finding that they now have to compete with yields on US ABS issuance, which have blown out recently, in order to garner offshore interest. As a result, it has become increasingly difficult 54 LATINFINANCE 2008 to align investor demands for higher yields with issuers’ willingness to pay, which has put pressure on issuers to revert to structures that use higher levels of overcollateralization and/or partial credit guarantees from third parties, as a substitute for the credit enhancement provided by mezzanine tranches. In 2008, the Mexican securitization market is likely to see an increase in securitization from consumer-related assets such as personal loans and payroll-deducted loans. The chief asset class, however, should remain real-estate related assets such as RMBS and construction take-out securitizations. Colombia and Peru Colombia and Peru are other markets where we see increased issuance during 2008. The nascent securitization markets in these two jurisdictions benefit from local institutional liquidity which has increased due to improved macro-economic environments. Performing mortgage securitization and infrastructure securitization are two asset classes likely to come to market in 2008. Conclusion In summary, during the first months of 2008 we have witnessed a global re-pricing and Latin America has not been immune to it. Despite sound fundamentals, Latin American issuers have to come to terms with the fact that in the post-subprime landscape, properly-structured deals can still come to market, albeit at a higher premium. Real-estate related assets should dominate the landscape in Mexico and Colombia. In Brazil, we expect the demand for esoteric assets to continue throughout the year, with a rebound in interest from investors in other asset types such as trade receivables, personal loans, and real estate expected for the second half of the year, in synch with Deutsche Bank’s expectations of amelioration in the overall credit markets worldwide. Brigitte Posch is a Managing Director, Roberto Watanabe is a Vice President, Chris Corcino is an Associate, and Emile Ernandez is an Analyst in the Securitized Products Group at Deutsche Bank Securities Inc. The opinions or recommendations expressed in this article are those of the authors and are not representative of Deutsche Bank AG as a whole. I Deutsche Bank Brigitte Posch, Managing Director and Head of Latin American Securitization Phone: +(1) 212 250 4551 Email: brigitte.posch@db.com Roberto Watanabe, Vice President of Latin American Securitization Phone: +(55 11) 2113 5081 Email: roberto.watanabe@db.com Chris Corcino, Associate of Latin American Securitization Phone: +(1) 212 250 1375 Email: chris.corcino@db.com Emile Ernandez, Analyst of Latin American Securitization Phone: +(1) 212 250 3097 Email: emile.ernandez@db.com Website: www.db.com
http://www.db.com
Latin Finance - April 2008

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