Seduced by the strong growth and rich opportunities of domestic ABS in Mexico and Brazil, many players have waved off Argentina. But judging by the flush pipeline, they may want to reconsider. And it's not only about quantity as the country starts edging beyond export and consumer deals, and new originators and arrangers hustle to sop up growing liquidity.
To anyone watching the energy crisis plaguing Argentina it may come as a surprise that three units of U.S. electricity giant AES Corporation have a joint ABS in the works. And there may be more to come from power producers, according to a source familiar with the Ps45 million (US$16 million) deal. In terms of length, the transaction is an eyebrow-raiser as well. With a duration of 16 to 18 months, it would rank among the longest deals post-default.
Banco de Valores and Compania Inversora Bursatil are leading the transaction, which has been rated A-(arg)' by Fitch Ratings. Nicholson y Cano is legal counsel.
The deal is backed by existing and future credits stemming from sales to Argentine energy authority Compania Administradora del Mercado Electrico Mayorista (CAMMESA), Brazilian energy firm Comercializadora de Energia del Mercosur (CEMSA) and large direct-purchase clients.
The three AES units participating in the deal are Alicura, San Nicolas and Juramento, which will take 50%, 43%, and 7% of the proceeds, respectively. Proceeds are earmarked for working capital.
With an installed capacity of 1,040 megawatts, Alicura is a hydroelectric plant straddling the border between the provinces of Rio Negro and Neuquen on the Limay River. Located in Buenos Aires Province, San Nicolas is a thermoelectric generator with 650 megawatts of capacity. Juramento is a plant designed to run on both hydro- and thermo-energy. Its capacity totals 186 megawatts. About 70% of their sales are booked through CAMMESA. CEMSA accounts for 23%, and big users, 7%.
CAMMESA coordinates power and cash transfers between generators, transmitters, distributors and large users. Electric tariffs have been frozen since 2002, which has crippled the sector and led CAMMESA to rack up debt with the generating sector. That debt stood at Ps374 million (US$130 million) in January, according to Fitch. This delinquency is already reflected in the rating of the transaction, according to a source close to the deal. "Its strengths are the multiple assets and receivables," the source said.
The other main obligor, CEMSA, is an energy-marketing firm controlled by Spain's Endesa. It sells its product to another Endesa unit, Companhia de Interconexao Energetica (CIEN), which distributes power in Brazil, among other activities. Large users are defined as those that negotiate directly with generators thanks to a demand of more than 30 kilowatts.
AES indirectly controls all three companies. Globally, the U.S. power giant operates 114 electric plants with an installed capacity of 45,317 megawatts. Its assets in Argentina total US$2.6 billion. Power demand has been largely inelastic in Argentina, with a 2% contraction in 2002 the only punctuation to steady growth.
BST taps loans originated
Meanwhile, a new Argentine player has entered the ABS business, debuting in two capacities. Acting as originator and placement bank, Banco de Servicios y Transacciones (BST) recently closed a Ps7.8 million (US$2.7 million) deal backed by commercial loans. BST purchased the collateral from Citibank last December. With a legal final maturity of one year, a Ps3.5 million (US$1.2 million) senior tranche went to private clients of the bank at a yield of 7%. "We need [regulatory] approval to place paper with pension funds," said Carlos Sarranz, head of back-office operations at BST. The bank is currently awaiting approval for that and other market operations, he added. BST has held onto the Ps4.3 million (US$1.5 million) in two junior pieces. A B piece sized at Ps2.5 million (US$866,000) and yielding 11.5% might be filtered into the market following the
Deal trustee ABN Amro is pleased with the results of BST's inaugural ABS. "We enjoyed this opportunity to work with them," said Hernan Gutierrez, head of trust and fiduciary products at the bank. Presently, BST has nothing on the front burner, but is open to handling further ABS, according to Sarranz.
Argentina's Ford Credit
The Dutch bank is also participating in another ABS, in which it wears three different hats. ABN will extend a loan to Ford Credit Compania Financiera capped at Ps30 million (US$10 million) at a maturity of 365 days or under. Subsequently, the bank's trustee arm will issue paper that mirrors the terms of the bond. With the proceeds, the trust will purchase the loan. The transaction is a way for ABN to get a loan off
its balance sheet and might have been cheaper than straight issuance
by Ford Credit, according to a
source familiar with the deal. Neither Ford nor ABN officials could be reached for comment. Marval O'Farrell & Mairal is legal counsel.
The deal doesn't feature auto loans, which are nowhere close to returning to the ABS market, according to Mauro Chiarini, associate director at Fitch in Argentina. "Auto loans are growing slowly, but the activity's still too lukewarm," he said, adding that the volume remained too small. In addition, he noted that banks, flush with liquidity, have little incentive to tap the market for funding.
Only in the last week has Ford Credit relaunched credit to individuals for new cars via a network of participating sellers. The Argentine car business is still crawling out of a massive pothole. Sales are expected to reach 231,800 vehicles this year, a far cry from the 474,000 sold during 1998, the last year of healthy activity. Rock bottom came in 1998, with 97,000 vehicles sold.
ING returns to Argentine ABS
Over in the more successful export sector, agribusiness player Nidera has introduced a securitization of export receivables into the pipeline for up to US$20 million. ING Barings and homegrown brokerage Capital Trusts co-structured the deal, while the former is sole placement agent. The paper is a standard export ABS backed by payments from Nidera Handelscompagnie to the related Argentine company. Moody's Investors Service rated the transaction A1.ar' on the national scale.
In yet another sign that ABS in Argentina is plumping up, the deal marks the return of ING in post-crisis Argentina and a first for Nidera in the structured realm, according to sources. Issuance may come as early as two weeks, pending regulatory approval.
The legal final maturity on the deal is three years and 10 days from closing. An exchange rate-related provision could trigger an extension of the deal's life, however. Investors can defer payments of interest and/or principal if there is a two-tier exchange rate event, deemed by Moody's as "a difference greater than 5% between the free market exchange rate and the official exchange rate for exports."
"This could push the deal back as much as eight years and ten days," said Martin Fernandez, an analyst at Moody's. A guaranty from the corporate buttresses the deal's creditworthiness. It covers any shortfall in cash deposited in the peso account only related to debt service. The enhancement doesn't include trustee risk.
From its inception in 1920, Nidera Handelscompagnie was keen to push into foreign markets. The name "Nidera" comes from the first letter of the six countries on its radar since operations launched: The Netherlands, India, Deutschland (Germany), England, Russia and Argentina.
Elsewhere, the Argentine consumer credit division of Chilean department store Falabella was timed to close a deal on May 7. The transaction totals Ps13.4 million (US$4.6 million), with a senior tranche worth Ps10.7 million (US$3.7 million). Banco Patagonia Sudameris is managing the deal. Expected life is seven months.
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