The charms of Mexico's domestic market have already captivated XLCA and MBIA. Now it's Ambac's turn. The monoline insurer is working on one transaction each with Su Casita and Patrimonio, originators that belong to a group of nonbank housing finance companies known as Sofols. Whichever deal comes first would signal Ambac's debut in Mexico's local currency market.
Backed by bridge loans for construction, the Su Casita transaction is understood to be further along than Patrimono's deal, which collateralizes mortgages. At any rate, neither transaction is timed to close before Mexico holds presidential elections on July 2.
Ambac's motive for choosing housing as its entryway into Mexico shouldn't surprise anyone familiar with the monoline insurer. "Housing is a big part of Ambac internationally," said a source quite familiar with the guarantor.
Indeed, roughly 14% of the insurer's global portfolio is in housing assets, according to the source. Diving first into housing will set Ambac apart from XL and MBIA, which have centered their efforts on Mexico's domestic market in the infrastructure sector, namely toll roads. In fact, Ambac's maiden deal in Mexico will double as the first monoline-wrapped transaction in the country's domestic real estate sector.
On the cross-border front, Ambac has already insured a tranche each in deals issued by Su Casita and fellow Sofol Metrofinanciera. But in those transactions a swap stripped out the currency risk. This won't happen in a domestic currency transaction.
The local Su Casita deal wrapped by Ambac will be structured so it can be reopened, an approach the originator has taken with a deal that was issued in November 2004, and reopened twice. "The transaction costs are lower," said Mark Zaltzman, deputy head of corporate finance at Su Casita. He added that issuing a bond that can be reopened can cut the lead-up time to pricing.
The initial tap is planned at between Ps500 million and Ps700 million ($44 million to $62 million), with a legal final of 10 years. The paper would have a senior-sub structure, with 81.4% of the aggregate allocated to the senior chunk, 13.95% to the mezzanine piece and 4.65% to a residual slice to be purchased by the originator. ING has already been tapped to lead the deal.
Zaltzman expects the deal to price tight to other Su Casita deals since the risk will be attached to Ambac, a triple-A rated entity. Elsewhere in the market, Su Casita closed an RMBS (see p.24).
Meanwhile, Patrimonio is expected to have Ambac on board with a Ps600 million RMBS, though the monoline's participation hasn't been finalized, according to sources close to the transaction. The Sofol plans to dispense with mortgage insurance if Ambac participates, one source added. A complaint voiced by originators in the Mexican market is that insurance is overpriced since there is, to date, only one provider, the Sociedad Hipotecaria Federal.
Patrimonio hasn't directly securititzed its mortgages, though GMAC Financiera has issued an RMBS backed by loans purchased from Patrimonio. The originator, however, has issued a deal backed by self-originated bridge loans for construction.
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