Banks in Argentina are offloading government debt into securitizations as a way to cut their exposure and provide liquidity to obligations that are effectively non-tradeable, sources said.
"It's a way for banks to clean up their balance sheets," said Maria Sol Ventura, ratings specialist at Standard & Poor's.
And in a sign that arrangers are courting foreign investors with these deals, a recent ABS originated by BBVA Banco Frances was Reg S registered, although, as of press time, there was no official word as to whether investors outside of Argentina actually bought in.
The transactions that have closed so far have been simple CDOs, with the bond more or less mirroring the underlying asset in tenor and size. The Frances deal, jointly led by the originator and Citigroup Global Markets, came to Ps841 million ($286 million) and matures in 2011 - an unusually long tenor for Argentina's domestic market, which has been dominated by short maturities since issuance revived in the aftermath of the crisis that erupted in early 2002 (see related story above).
The longer maturities of this asset class generally appeal to domestic investors because of their scarcity, according to Ventura. The Frances deal priced last Tuesday at a yield of 4.31% plus inflation-indexed CER, slightly over 30 basis points above the rate on the underlying collateral.
In registering the transaction under Reg S, the leads could have been capitalizing on the recent trend of foreign bond investors snatching up Latin American paper denominated in local currency. This deal didn't even carry a rating outside the national scale, which is used to assess local currency risk and is not comparable across countries. S&P rated the deal raA'. Officials at neither Citigroup nor Banco Frances could be reached for comment on foreign investors' interest in the transaction.
The Argentine unit of Deutsche Bank is up ahead with a deal backed by government debt. The underlying assets appear to be similar to the debt that Frances tapped. Maturing in 2011, the collateral carries a yield of 4% plus inflation-indexed CER. The cap on the deal is Ps1 billion. There is no word yet on whether the transaction, also rated raA' by S&P, will be peddled to foreign investors.
Banco CMF and Banco Supervielle have issued deals backed by government debt over the past few months, according to sources. CMF's ABS was sized at Ps106.3 million and Supervielle's was Ps76.5, both falling far short of the heft of the Frances transaction and the likely volume of Deutsche Bank's looming deal. Fitch Ratings rated the CMF deal A(arg)' on its national scale, while Moody's Investors Service rated the Supervielle transaction A3.ar' on its national scale.
The assets in the sector are comprised of debt, known as "Guaranteed Loans", that the Argentine government issued when it reconstructed obligations held by local banks. By restructuring, the government was attempting to lower the interest rates, and extend of the maturities, of its debt. The loans were originally denominated in dollars, but were swapped into pesos following the government-imposed pesification of all debts in early 2002.
Many local banks and local units of foreign banks hold substantial quantities of this debt on balance sheet, according to sources. One reason securitization has become the preferred route to offload the obligations is that simply selling them to institutional investors is riddled with obstacles. "Theoretically they can be traded, but it's very difficult to do it," said Martin Fernandez, an analyst at Moody's Latin America.
Pension funds have caps on how much government debt they can hold, but curiously enough, under current rules, a securitization of these credits eludes those regulatory limits. "Pension funds can buy more of this paper," said S&P's Ventura.
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