NEW YORK - If there's a bright side to the Argentine crisis, perhaps it's that the country, once a top player in the securitization arena, has now become somewhat of a textbook model for what works and what doesn't in the structured finance world in times of major trouble.
At a Latin American forum hosted by Standard & Poor's last week, analysts noted that the Argentine sovereign default has not produced as brutal of a contagion effect as was originally feared. However, the fallout has hit virtually every sector within the Argentine market and has left long-lasting and severe wounds.
Diane Audino, an analyst with S&P and a panelist at the forum, discussed the existing transactions within Argentina. The overall deal performance in the country has been a relatively mixed bag, in part because there is a mixed bag of assets including future flow, preferred creditor, political risk insurance and mortgage-backed securities.
According to Audino, future flow transactions are performing the best, with two of the YPF deals, which have bond insurance, maintaining a triple-A rating. And, while another YPF transaction that does not have bond insurance is still performing, it has a double-B-plus rating and is on Credit Watch negative. Furthermore, Salta Hydrocarbon Royalty Trust, a future flow transaction backed by oil and gas royalties, has been diminishing over the past few months and may be the first test case to actually call upon its political risk insurance. In general, future flows are proving to be stronger transactions in the face of sovereign default since the revenues are in a hard currency and are captured offshore.
Mortgage-backed transactions and deals that rely on single obligors are experiencing the most difficulty. Additionally, Kevin Kime, a director at S&P and also a forum panelist, focused on Latin America and emerging markets as a whole. According to Kime, structured finance transactions related to the airline industry and commodity exports have also come under significant credit stress. Oil, export deals, and financial future flow transactions, however, are continuing to perform relatively strong.
The forum was followed by commentary from Ambac's Diana Adams and JPMorgan's Mark Tuttle. The subject of political risk insurance, insurance for transfer and convertibility risk, arose in the discussion. One market player from the Overseas Private Investment Corp. noted, "Transfer and convertibility doesn't cover the whole enchilada. We are working on something new... we're going to the next step."
Although political risk insurance isn't bulletproof, market players still find it valuable. "Political risk insurance gives timeliness and liquidity. We value it and continue to look for it, but we'll be more realistic," Adams said.
Going forward, Adams also noted that the market will see the same type of deals as in the past, although there may be new asset classes and new countries. "There's still a market for structured finance transactions in the region," Tuttle said. "New products and new structures that's what we're all looking for."