Securitization in Argentina has been the little engine that could since it sputtered out of the crisis sparked by the central government's default of December 2001. To be sure, the sector remains miles behind the regional locomotive it once was; up to 2001, Argentina was Latin America's domestic securitization leader, with a nearly $7 billion in outstanding issuance when the default struck.

In the last few years, growth has held steady, deal sizes are edging up, and the government's push to bring infrastructure into the ABS equation might give rise to new, if somewhat sporadic, platforms for deals.

Securitization issuance in the first quarter totaled Ps1.8 billion ($582 million), up 74% from the same time frame last year, according to a report by Gainvest Asset Management. January and February are slow months as bankers flee the steamy summer heat of Buenos Aires. The pace will likely pick up over the next three quarters, with market projections placing full-year volume at Ps10 billion.

Carrying over from last year, consumer credit and personal loans were the dominant asset class in the first quarter as the collateral behind 54% of issuance by volume. Credit cards accounted for 18%, mortgages for 11%, commercial loans for 8% and real estate assets for 9%. While the industry is expected to grow, no one expects its makeup to alter too dramatically.

"If we look at the [asset class] pie, it'll be bigger but its composition won't change much," said Enrique Algorta, deputy head of capital markets at Compania Inversora Bursatil.

Mortgage securitizations

On the mortgage front, origination is moving forward, with the stock of housing loans hitting Ps6.5 billion in February, a 21% year-on-year increase. BACS Banco de Credito y Securitization has managed a string of mortgage deals for Banco Hipotecario, an issuer that has made a strong comeback after RMBS defaults occasioned by the pesification of all dollar debt in 2002. Hipotecario is now going on its ninth RMBS since the crisis in a program that has yielded more than Ps500 million in issuance, according to Rafael Rivero, CFO of BACS.

Hipotecario is churning out enough mortgage volume to regularly issue RMBS. The last few deals haven't included mortgages generated before the crisis, which were in the collateral mix for the first four deals.

As the liquidity of the market has deepened, Argentina originators have been increasing the size of their deals, but they still look underfed by the standards of the cross-border market and the domestic markets of Mexico and Brazil. Securitizations in Argentina also tend to have short durations, in part because the main asset classes have short durations. For instance, in the case of consumer loans, borrowers are sticking to short-term credits. "It's the nature of the business," said Sol Ventura, an analyst at Standard & Poor's.

In addition, there are tax disincentives to a revolving transaction, although some programs in the consumer sector, such as Tarjeta Shopping, have taken that route.

Foreign investors

Argentina has yet to follow the lead of Mexico and Brazil in attracting appreciable numbers of foreign investors into local currency paper. One reason is the encaje, an effective tax on foreign portfolio money instituted in 2005. It requires foreign investors to make a one-year deposit in an interest-free account at the Central Bank for an amount equal to 30% of the money they are using to make any number of portfolio investments. Used for years in Chile to shift the composition of investment to more long-term capital, the encaje can obviously kill foreigners' appetite for local currency paper.

Nevertheless, foreign investments have made an appearance in local currency securitization in Argentina in the past year. Overseas money, for instance, snapped up a securitization set up to retire debt for the expansion of two gas pipelines. This Ps588 million deal, led by the government's energy secretary, was exempt from the encaje, as will likely be the case with future transactions that help advance the government's agenda of stimulating funding in infrastructure.

The securitization was ultimately backed by usage fees paid by such clients as YPF and Petrobras. As the fees are paid even if the gas does not actually make it through the pipeline, the deal's risk is not so much linked to the pipeline's performance as to that of the client companies.

"This is the form of financing that [the government] intends to apply to infrastructure projects," said Martin Fernandez, assistant vice president at Moody's Investors Service. He predicted more of these transactions but said that they would be unlikely to give rise to a proper asset class in the foreseeable future. "They will be very specific and tailor-made," he added.

(c) 2007 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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