Having won over banks in the U.S., Europe, and Asia, CLO technology is now crossing into South America. In its latest incarnation, Argentina's big banks are attempting to securitize very specific portfolios: their loans to the country's provinces.
Banco de Galicia y Buenos Aires, Argentina's largest bank in assets, may be the closest to finding the structural key, and if a deal proceeds as planned, the bank is expected in the international markets with its first such CLO in the next month or two. Banco Santander, another of Argentina's large banks, has also been working on a structure, sources said.
Creating CLOs out of the banks' loans to the provinces "could get done," said one rating agency analyst. But it will be "tough," he added.
As currently envisaged, a CLO would be backed by a pool of around 20 or more existing loans, secured by the provinces' tax revenues. The pool would be enhanced by the co-participation warranties to the provinces from the federal government; these warranties typically guarantee a portion of tax collections to each province, as well as an annual floor payment.
To be sold abroad, a CLO would also need third party credit enhancement to circumvent the sovereign ceiling of double-B in Argentina. The U.S. monoline insurers would be likely candidates.
If the structural details can be worked out, the collateral would be attractive to securitize, noted one analyst. The provinces, often strapped for cash and rated well below the sovereign, pay high rates of interest for the loans, leaving sizeable excess spread in a securitization - and potential profits for the issuing bank.
Some provinces, notably Santiago del Estero and Tucuman, have issued their own cross-border securitizations backed by tax revenues (ASRI 9/7/98, p.13). But since the financial crisis of last summer, it has been difficult for the provinces, which are among Argentina's weaker credits, to access the capital markets, even with securitized deals.
In addition, a source pointed out, Tucuman issued an international deal in 1997 that was not well-received by investors and subsequently was considered for inclusion in a CBO by the underwriter Bear Stearns. - JB
