LatinFinance - July 2013 - 25

Structured finance

public-private partnership investments,
which they could repo with the European
Central Bank, says Paul Forrester, partner
at Mayer Brown.
But most purpose-built international
precedents looked a little different to
what CAF is planning. They invest in
large, diverse pools of assets with as many
as 100 bonds or loans, says Forrester. He
says the modest diversification proposed
in the Colombian plan is a potential
problem.
“One of the things that makes a
CDO attractive is that it can offer a
homogenous but diverse pool where the
manager is highly incentivized to trade
sensibly and maximize returns,” he says.
“You can’t do that here, it’s all dependent
on toll roads. How much users drive
and how far they drive is also somewhat
dependent on the general Colombian
economy.”
Traverso is aware of the need to
diversify. The CAF-sponsored vehicle
is likely to invest in 15 to 20 projects,
either through loans or bonds, he says.
Colombian road construction concessions
will make up the bulk of the vehicle’s
investments. After all, that is the purpose
of the fund. But it may buy other deals
– potentially even in other investmentgrade Latin American countries – to build
a diversified asset pool.
Currency mismatch is another
potential issue if the debt sold by the CDO

is in dollars, says Mike Morcom, head of
Latin American agency & trust sales at
Citi.
The fund could overcollateralize to
counter the risk of currency fluctuation,

Traverso: leveraging the CAF’s investment
but that brings its own difficulties.
“Infrastructure transactions do
not typically have high levels of
overcollateralization,” says Morcom. “If
you were to use overcollateralization to
mitigate currency risk, which has been
done in other asset classes, the deal
may have overcollateralization levels
that challenge deal economics from the
sponsor’s perspective.”

Early days

Nevertheless, Morcom says collateralized
loan obligations – CDOs that only invest
in loans – are bouncing back after the
crisis globally.
“There’s been a resurgence in CLO
issuance in the US, which shows the asset
class has positive attributes that investors
think about,” he says.
“Compared with project-specific
financing, a CLO benefits from a pool of
projects, and the ability to have different
risk return profiles.”
Traverso is optimistic about the
prospect of the fund, saying it is a way to
create double or triple-A rated paper –
without which institutional investors will
show little interest in putting money into
Colombia’s infrastructure build out.
But he stresses the project is still in its
initial stages.
“We’re seeing what kind of rating
the assets would have, what kind of
subordination the fund would have, what
kind of credit enhancement,” he says.
“We then need to negotiate with the
ratings agencies, and we have to sell the
product.”
It is early days. But if the fund is able
to attract investment from institutional
investors, it would be not simply another
step in the post-crisis rehabilitation of the
CDO asset class – it would set a powerful
precedent for infrastructure financing in
the rest of Latin America. LF

Stepping up
CAF’s plans to establish an infrastructure CDO in Colombia come as other issuers across Latin America are increasing their use of
structured finance.
Also in Colombia, the finance ministry’s changes in the tax framework in late 2012 included scrapping exemptions for banks to
hold rent-to-buy lending on their balance sheets. That is likely to increase sales of RMBS, as banks free up balance sheet space
for further lending. Titularizadora Colombiana will issue as much as $1 billion equivalent of RMBS this year – up from around $500
million in 2012 – partly as a result of the tax changes, says Diego Rojas, the firm’s planning director. Growing lending by public
entities will also contribute to higher rates of securitization in Colombia, Rojas says.
And in Brazil, agricultural receivable securitizations are expected to boom, following strong growth in the country’s real estate
securitization market. BER Capital is waiting for regulatory approval to launch what would be the country’s fifth agribusiness
securitization firm, Securitizadora do Agronegócio, in anticipation of rapid expansion of the market.
Brazilian firms issued 283 million reais in agribusiness receivable certificates (CRAs) in 2012. BER already has 350 million
reais worth of issuance in its pipeline, says Eduardo Saksida, head of capital markets at the company. He expects 1 billion reais
worth of CRA issuance in 2013, drawing parallels with the growth of Brazil’s real estate securitization market.
“The agribusiness market could be much larger than that. The industry is worth 22% of GDP,” he says.

July 2013

LatinFinance 25

LatinFinance - July 2013

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