Argentina witnessed Ps1.68 billion ($587 million) in domestic issuance through financial trusts - basically a proxy for securitization - during the first half of the year, according to a monthly report drafted by Gainvest Asset Management. Activity for that time frame outpaced the entire year of 2004, which posted Ps1.63 billion. Some Ps304 million was issued in June alone.
The consumer segment accounted for Ps743 million, or 44%, of all the issues in the first half, but the overall rise in activity has brought moderate diversification as well, with mortgages, leasing and other asset classes eroding the dominance that consumer assets have held over the last couple of years.
"Securitization is very attractive for leasing companies," said Mauro Chiarini, an associate director at Fitch Ratings in Argentina. He cited tax advantages as one of the main draws of ABS. Since the Argentine devaluation in December 2001 and subsequent plunge in economic activity, only three leasing ABS have come out.
The most recent came from The Capita Corp., which closed its debut securitization June 1, with a Ps31.7 million bond backed by rights to leasing contracts. The contracts cover machinery, other equipment and plant facilities. The lead on deal was Comafi Bursatil and the trustee is Deutsche Bank. The leasing contracts are valued at Ps34 million. Rated A+(arg)' by Fitch, the A tranche was sized at Ps27 milllion. With a final maturity of 18 months and a 12 month duration, the senior piece priced at 10.28%. TCC is the servicer.
The collateral is a mix of leasing contracts originated before and after the Argentine devaluation, which triggered widespread defaults in the bond market. The contracts originated before the crisis make up 65% of the collateral. Those were renegotiated, with 50% now paid out in pesos but fixed to the dollar/peso exchange rate and 15% converted to an inflation-indexed peso denomination. The other 35% is comprised of peso contracts signed since July 2004, with 30% bearing fixed rates and 5% yielding variable rates. The company re-launched its leasing operations in July 2004, having spent the prior two years focused on renegotiating pesified contracts and weathering the collapse of leasing demand during the depths of the crisis, according to Alberto Boix, head of corporate finance at Banco Comafi.
The transaction launched TCC's Ps100 million securitization program. "We're expecting to do two to three deals a year," Boix said. He added that Comafi is currently originating between Ps12 million and Ps15 million in leasing contracts a month. "If the economy keeps up this pace of growth, our originations should increase," Boix said.
In real terms, Argentina's GDP leapt 8% in 1Q05 year-on-year after roaring ahead at clips of 9% in 2004 and 8.8% in 2003, according to the country's central bank.
While leasing in Argentina is riding the galloping economy, the industry still pales in comparison to its counterparts in other Latin American countries. In a 2004 ranking of the 100 largest leasing companies in the region compiled by the Alta Group, the biggest Argentine entity, Banco Galicia y Buenos Aires, came in at 71, with a portfolio of $34.0 million. TCC notched in at 84, with assets of $23.5 million.
Meanwhile, MBS, one of the most maligned sectors following the crisis, has been forging ahead in the domestic market. Banco Hipotecario, for instance, originated a transaction that totaled Ps64.6 million, with a senior tranche of Ps54.9 million. "The volume of issuance is larger now," said Rafael Rivero Ayerza, the CFO of Banco de Credito & Securitization, which led the transaction. As in the TCC leasing deal, the collateral in the Hipotecario securitization contained mortgages originated both before and after the devaluation. Many foreign investors were scorched by defaulted Argentine MBS in the wake of the forced pesification of dollar denominated loans.
Elsewhere in the asset class universe, banks have started securitizing loan portfolios, following on the coattails of retail stores that were among the first issuers to resurrect the domestic market. Banco Galicia and Banco Macro Bansud have been part of this trend. "We're seeing more banks securitizing now that they've started lending more money," said Fitch's Chiarini.
Banco Macro Bansud closed a Ps70 million ABS in late June, with a duration of 5.77 months. Led by the longstanding team of Banco de Valores and Compania Inversora Bursatil, the deal's Ps59.5 million senior tranche priced at 7%. Fitch rated the senior piece AAA(arg)'.
Another trend in the marketplace has been the cautious lengthening of maturities. The first consumer deals after the devaluation had durations of three months, while more recent ones have durations beyond five months. Terming out might soon be put on hold though, with upcoming Congressional elections in Argentina likely to disrupt the growing appetite for heightened risk, sources said.
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