The Argentine provinces are edging into the market with a securitization of federal tax co-participation system revenues from the Province of San Juan and a possible oil royalties-backed deal from the Province of Mendoza. Both deals follow the recent Province of Salta transaction, the first oil and gas royalty-backed transaction that was able to receive investment-grade ratings.

According to sources, the deal is expected to be approximately $200 million. The province has authorization under its law to securitize a maximum of $400 million this year.

San Juan is planning to securitize a portion of its co-particpation revenues in which the Argentine province will transfer the rights to receive the federal tax revenue to a trust (Argentine Co-participation tax revenue political risk insured trust) and the trust will then issues notes.

Steadfast, a subsidiary of Zurich, will provide political risk insurance and Bear Stearns will lead the deal.

Fitch will rate the transaction, and sources say it is expected to be rated investment-grade, marking the first Argentine province to receive an investment-grade rating with a transaction of this structure.

While there seems to be quite a bit of market speculation about the Province of Mendoza, some sources say it is preparing a short list of five banks to lead manage a $150 million bond backed by oil royalties. Ten banks were invited to pitch for the deal in January. Proceeds for the transaction will be applied to rolling over the remaining $40 million of an outstanding royalties-backed bond due 2002 and to plug budgetary shortfalls.

Fitch downgraded the Province's foreign-currency bond to BB- from BB in September 2000 but kept the outstanding oil-backed bond on stable outlook at BB. The downgrade came off of mounting fiscal deterioration in the province - notably a $88 million deficit in 1999 - that could make the marketing of the transaction problematic.

The transaction will follow the recent Province of Salta, which placed a $225 million 15-year bond with an 11.5% coupon in January via Lehman Brothers. That transaction was rated BBB- by Fitch and Standard & Poor's.

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