Category: Structured Finance

Structured finance transactions in LatAm surged 25% last year, with ABS and MBS deals totaling 19.1bn in 2007, according to Moody’s. In 2006 the same asset classes corresponded to $15.3bn. Mexico, Brazil, and Argentina continued leading domestic issuance. Mexico accounted for a share of 36.5%, Brazil a 34.9% portion, and Argentina a 17.4% part of the total. Consumer loans were the most commonly securitized asset in 2007, making up 36.8% of the total. “Consumer-related transactions will continue to represent a large portion of total securitizations in Latin America, mainly driven by the popularity of these asset types in Brazil and Argentina,” says Martin Fernandez Romero, an analyst at Moody’s.

Cross-border MBS volume rose 109% in 2007 to $3.15bn due in large part to the pickup in internationally offered Mexican MBS. A number of issuers tapped offshore markets for the first time for a combined $591m, according to Moody’s. Mortgages were the second most-common asset type to be securitized in LatAm’s domestic markets in 2007. Cross border issuance is, however, vulnerable to the sub-prime mortgage credit crisis in the US, says Moody’s. “A relatively more hostile credit environment for Latin American blue chip companies and top tier banks may translate into higher issuance volumes for [typically domestic] future flow transactions, since market issuers and investors have turned to these structures in the past in times of uncertainty,” says Fernandez Romero.

Structured finance transactions in LatAm surged 25% last year, with ABS and MBS deals totaling 19.1bn in 2007, according to Moody’s. In 2006 the same asset classes corresponded to $15.3bn. Mexico, Brazil, and Argentina continued leading domestic issuance. Mexico accounted for a share of 36.5%, Brazil a 34.9% portion, and Argentina a 17.4% part of the total. Consumer loans were the most commonly securitized asset in 2007, making up 36.8% of the total. “Consumer-related transactions will continue to represent a large portion of total securitizations in Latin America, mainly driven by the popularity of these asset types in Brazil and Argentina,” says Martin Fernandez Romero, an analyst at Moody’s.

Cross-border MBS volume rose 109% in 2007 to $3.15bn due in large part to the pickup in internationally offered Mexican MBS. A number of issuers tapped offshore markets for the first time for a combined $591m, according to Moody’s. Mortgages were the second most-common asset type to be securitized in LatAm’s domestic markets in 2007. Cross border issuance is, however, vulnerable to the sub-prime mortgage credit crisis in the US, says Moody’s. “A relatively more hostile credit environment for Latin American blue chip companies and top tier banks may translate into higher issuance volumes for [typically domestic] future flow transactions, since market issuers and investors have turned to these structures in the past in times of uncertainty,” says Fernandez Romero.

Mexican mortgage shop Metrofinanciera has cracked open domestic RMBS with the first 2008 transaction of significant size. It priced Friday an UDI-denominated MXP1.04bn-equivalent in 2033 bonds backed by mortgages from its portfolio at 5.3%, or 177bp over 10-year Udibonos. The 144A-registered notes were available to US investors through ADRs, but went mostly to the local market, according to officials on the deal. The market may not be what it was a year ago, says one, but the shop needs to issue, and was able to place the notes at the beginning of what many in the Mexican market expect to be a weaker 2008 overall for structured finance. The deal has a AAA local rating. Ixe and Deutsche Bank managed the sale. Mexico has enjoyed stellar growth in structured finance, with issuance as a whole jumping to $7.1 billion equivalent in 2007, up 15% from the previous year, according to S&P. RMBS makes up more than a third, in a mix of private sector Borhis and Cedevis issued by quasi-state housing fund Infonavit. Issuers expect a rise in 2008 RMBS but investor appetite looks very limited unless major price concessions are made.

The Colombian MBS market will stay on track this year, according to Fitch, which says Titulizadora Colombia will securitize the bulk of its portfolio. Local markets are the focus, but the agency also sees potential in cross-border. A consumer loan deal from BBVA that was rated last year is expected to come early in 2008, marking the first deal of its kind from the Spanish bank in Colombia. Fitch notes interest in these types of deal from other banks as well as utility companies, since they finance household appliances through their billing systems. Infrastructure in Colombia is another sector where Fitch sees a positive trend, amid increased national development plans. “This will allow local and international investors to utilize financial structures that consider some kind of guarantee to help mitigate risks related to these projects,” says the agency. Meanwhile in Peru, favorable macro developments, coupled with a pipeline of project-related deals, should continue to boost ABS, according to Fitch.

Mexico’s RMBS issuance is expected continue to rise in 2008 despite nasty global conditions and disruption within Mexican markets, according to Fitch. Expansion will come not only from continued issuance from Infonavit and the Sofoles, but Fitch expects new and existing players to do more securitization in the banking sector. Additionally, the Infonavit equivalent for state employees, Fovissste, plans to do a debut RMBS in 2008. These two factors, combined with Hipotecaria Total, which aims to make securitizations faster and more efficient, have the potential to make 2008 a lively year for RMBS, according to Fitch. Significant issuance in 2008 will only be attainable through strong support from local investors as international buyside participation will be limited. There have been recent signs that the local markets have been pulling back from this sector, and a further repricing of risk will continue during 2008. At a LatinFinance event in DF earlier in the month, investors expressed hostility towards local ABS in general and said issuers were not offering enough spread.