The trend shift of Latin American securitization activity from international issuance to Brazil and Mexico's local markets was amplified in the first quarter when only one originator dropped into the cross-border market. The ramp-up in Mexico was particularly impressive, with six issues in March alone.

In the cross-border arena, Mexico's BBVA Bancomer stood starkly alone. What's more, its US$300 million credit-card deal didn't even go to the public market. Lead Harris Nesbitt was understood to have dropped the bond into one of the arranger's conduits.

The bustle of the domestic markets stemmed from falling or already subdued interest rates, open-armed investors, and, in Brazil, the inescapable cost advantages of a new vehicle.

Cross-border issuance is not exactly out of commission, but a combination of factors appears to have dampened volume in the first three months. A window for unsecured issuance motivated securitization veterans CSN and CVRD to go vanilla in January and a more amenable climate made banks more willing to use balance sheet funding, sources said. Also, many of the usual suspects in Brazil had tapped programs in the third quarter of last year, reducing the need for additional funding so soon.

Despite the lull, no one appears to be trimming full-year forecasts yet, with volume projections hovering near 2003, when they hit US$4.2 billion. While the bulk of volume will come from Brazil, other countries should yield enough issuance to make this year a little less Brazil-heavy than last year. Dresdner Kleinwort Wasserstein, for instance, has the mandate for a deal for Mexican housing finance company Metrofinanciera, and Central American banks, such as Banco Salvadoreno, are due out as well.

New asset classes, players arrive in Mexico

Anyone bored with the dollar-market snooze in the first quarter should have turned south. A string of deals in Mexico reinforced the busy reputation forged last year by this recent investment-grade inductee. ASR tracked eight securitizations for a total Ps7.1 billion (US$639 million) (see table below).

More telling, the peso market yielded several debuts. New asset classes and originators sprang up, while global bank UBS cast its lot with the Mexicans by leading its first structured deal. "It was quite active," said Marcela Pino, director of institutional trust services at JPMorgan Mexico. "There's been a certain level of stability that's promoting these structures."

Freshly minted assets included fees on electronic money transfers and commercial real estate leases. Issued by a unit of retail giant Grupo Elektra, a Ps2.6 billion (US$233 million) transaction backed by e-cash fees smacked of a class common on the cross-border front, but was, on closer scrutiny, quite different.

While Brazilian banks have securitized their money transfers in significant volumes for dollar issuance, they have yet to consider fees. That asset class, sources said, would be trickier due to the local currency denomination and related complications trapping the flows on an offshore trust. Neither issue was a challenge for the Elektra deal, which stayed local.

Also blazing the asset trail was GICSA, which backed a Ps620 million (US$56 million) deal with lease contracts from three malls it owns. The shopping centers are far apart, located in the center, northwest and Caribbean parts of the country.

Meanwhile, RMBS - the sector that has foreign bankers most enthralled - produced its second-ever deal. Government agency Infonavit placed a 12-year legal final transaction amounting to Ps750 million (US$67 million). Low-profile boutique bank Biscayne Group structured the deal, while BBVA Bancomer and UBS were leads.

The arrival of UBS comes only three months after global peer Credit Suisse First Boston brought its first-ever structured deal to the peso market, also in the mortgage sector. New entrants Dresdner and Citigroup Global Markets are working on their own deals, further firing up competition in a sector once dominated by Deutsche Bank and homegrown player IXE.

Brazil FIDCs pass trial by fire

While Carnaval exercised its usual drain on first quarter activity, Brazil's domestic market still eked out respectable volumes in the structured field. The receivables investment fund (FIDCs) consolidated its grip on the market as the favored vehicle, with launches from at least seven issuers, as tracked by Fitch Atlantic Ratings and ASR (See table below).

The biggest news over the quarter was the demise of an FIDC for disgraced dairy giant Parlamat. Its death served to bolster a vehicle that had not been tested, as investors received their expected return in full, albeit for an exceedingly short maturity of less than two months.

Launched Nov. 25, the transaction was a securitization of revolving trade receivables, with Itau BBA as lead bookrunner and Banco Santander as co-lead. Initially, the fund's shareholders stood defiant against the spreading allegations of corruption against Parmalat executives. But eventually, their nerves snapped and, at a Jan. 19, shareholders' meeting, investors voted unanimously to redeem their shares. The nine shareholders received a total R$112.8 million (US$39 million), equal to the capital investment plus the targeted annualized yield of 170 basis points over the benchmark CDI rate.

The quarter also saw the inauguration of pure future-flow transactions in Brazil's domestic market. While foreign investors had grown comfortable with future-flow deals, local investors had to be educated. "They had to be made aware of the differences [from] existing assets," said Jayme Bartling, a senior analyst at Fitch Atlantic. Power producer CPFL Piratininga and petrochemical player Companhia Petroquimica do Sul (Copesul) issued future-flow transactions in the first quarter, both via Banco Votorantim.

Also in the first quarter, Banco Pactual announced plans to launch an FIDC of other FIDCs, and boutique investment bank Hampton Solfise went on a non-deal roadshow to spread the word of FIDCs to U.S. investors.

But not all is rosy for FIDCs. A corruption scandal in the government has been upsetting markets in general and players are wary of a proposal covering investment funds. In a regulatory draft, the Tradeable Securities Commission - Brazil's SEC - recommends prohibiting fixed investment funds known as FAQs from investing in FIDCs. "About 80% to 90% of pension fund investments are done through FAQs," said one Brazilian asset manager, adding, "this would destroy the FIDC sector."

Fortunately, the proposal looks likely to fail. "We're confident that they will change this," the investor said.

Consumer assets set Q1 tone in Argentina

In terms of asset classes, Argentina hardly changed in the first quarter. Consumer assets accounted for half of issuance, while the personal loan and export sectors each contributed two deals (see table below). The pace picked up from last year, which is surprising given that January and February are traditionally the country's peak vacation months. "We saw retail sharply increase its sales, and, above all, boost its financed sales," said Mario Kenny, a partner at law firm Nicholson & Cano.

While most of the deals came off existing programs, a company that processes tobacco made its debut. Cooperativa de Tabacaleros securitized receivables to the tune of US$12.4 million and used the funds to purchase tobacco from affiliated producers. Handled by Cohen Bursatil and Nacion Bursatil, a significant portion of the deal went to retail investors, who are no doubt growing tired of negligible returns on deposits and other investments.

Up ahead, there is talk that some leading power producers aim to do an ABS backed by supply contracts. The feasibility of such deals is questionable, given that the energy sector is facing a serious crisis. Forbidden to jack up prices since January 2002, energy companies have abstained from making new investments. Argentine president Nestor Kirchner has already been forced to impose power rationing. More promising sectors include equipment leasing and auto loans.

In terms of volume, it's unlikely that anything of substantial size will emerge in the near future in Argentina. Liquidity is increasing, but origination in the traditional growth areas is not keeping pace. The country's unresolved debt restructuring will continue to bottleneck the growth of structured finance, especially on the cross-border front.

Accounts receivables

emerge in Chile

The first quarter was typically slow in Chile. The only notable transaction was a private deal for poultry company Ariztia. Rabobank purchased the entire Ps6.35 billion (US$10 million) deal, which was backed by accounts receivable, a previously untouched asset class. Players said they expect companies that have habitually relied on factoring to now look at securitization in the wake of the Ariztia transaction.

Activity should gather pace in the second quarter, as it normally does in Chile. Supermarket chain Din is in the market with a deal. In addition, securitizations of government contracts, which surfaced last year, and CDOs of foreign bonds might make appearances in the near-term.

NPLs are the word in Colombia

The main story in Colombia was the progress made by mortgage securitizer Titularizadora Colombiana in the field of non-performing loans. Titularizadora has already targeted three banks for the collateral, Conavi, Colpatria, and AV Villas. The size of the senior tranche is projected to be no less than Ps150 billion (US$56 million). The loans will be more than one-year delinquent and the cashflow will come chiefly from foreclosures as opposed to partial payments.

Also down the pike in Colombia is a toll road deal. Concesion Vial de Cartagena has a Ps47 billion (US$18 million) transaction in the works, designed to revamp the issuer's debt profile. The concessionaire operates a 22-kilometer road connecting the Caribbean city of Cartagena with an access road.

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