Argentina was the little engine that could in the first quarter. Four years into a robust economic recovery, securitization issuance totaled Ps3.2 billion ($1.0 billion) from January through June, nearly double the volume of the same time frame last year, according to a report issued by Gainvest Asset Management. But apart from a handful of synthetic deals, backed by converted Argentine government bonds, the landscape of asset classes has remained remarkably static for an economy very much on the move.

"The market drivers are still consumer credit, personal loans and credit cards," said Martin Fernandez, an analyst at Moody's Latin America. "That's where Argentine growth is going."

Consumer and personal loans as a single category and credit cards as another backed 46% and 14%, respectively, of all the securitizations issued in the first half. Commercial loans, meanwhile, made up 2.6%. Lagging even further behind were mortgages and leasing, with 2.2% apiece.

Argentina's gross domestic product is projected to rise 7.7% this year, following eye-popping clips of 9.1% and 9% in 2005 and 2004, respectively. But the heady expansion hasn't spilled over into sectors that might add a splash of color to what's been looking like a monochromatic industry.

Mortgages are a case in point. Origination has been sluggish for a variety of reasons, sources said. "Real estate values in dollars are at or even above where they stood before the devaluation [of January 2002]," said Cristian Calderon, head of capital markets at Compania Inversora Bursatil. "Wages haven't kept pace."

Only wealthy homeowners, deep-pocketed investors and foreigners have had the wherewithal to snap up properties in Argentina and they, by and large, haven't been using mortgages, sources said. And on the other end of the equation, many RMBS investors would be loath to accept securities with yields lower than the market rate on 10-year mortgages, making the economics tricky even when there is enough raw material, Calderon added.

The preponderance among securitized deals of short-term consumer assets has stunted maturities. "The great majority of deals are still short series," said Sol Ventura, an analyst at Standard & Poor's in Buenos Aires.

The only longer-term transactions to make much of an impact have been the synthetic ones. Comprising 32% of issuance in the first half of the year, deals backed by converted sovereign bonds have gained in popularity because the underlying instruments are nearly impossible to trade. The larger synthetic deals have had maturities from four to five years, making them among the longer-term instruments available locally. In addition, they have the rare distinction of being adjusted by the inflation index CER, a plus for Argentine investors seeking a hedge against inflation. "The synthetic deals are placed without any problems," said Moody's Fernandez, alluding to their strong appeal.

Collateral for these transactions consists of loans that were swapped from paper issued by the Argentine government before the devaluation. The forced conversion of all dollar debt into pesos that took place in 2002 also covered these loans.

During the first half of the year, the busiest arrangers of nonsynthetic securitizations were Banco de Valores and Compania Inversora Bursatil. As joint leads, the pair handled 31 deals for a total Ps1.0 billion. In terms of volume, next in line was Banco de Galicia y Buenos Aires, which led six deals for a total Ps229 million, followed by Banco Patagonia, with 10 deals for Ps334 million.

The consensus view is that the tone in the second half is likely to be the same, as the consumer sector stays on top. There might be novelty, however, in the form of infrastructure projects funded via securitizations and Neuquen province reportedly planning a deal backed by energy royalties.

(c) 2006 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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