Banco de Credito del Peru is due this week to issue a $280 million, two-tranche deal backed by diversified payment rights, signaling a break in a protracted lull of structured finance activity from the South American country. The deal is split between a $250 million A piece and a $30 million B piece. The former, backed by an Ambac wrap, has a seven-year final maturity and four-year average life. The unwrapped B tranche has a 5.5-year final maturity and 3.5-year average life. Moody's Investors Service and Standard & Poor's rated the deal Baa2' and BBB', respectively. Price guidance is between 21 and 25 basis points over one-month Libor for the wrapped tranche, according to a source close to the deal. There was no guidance for the unwrapped piece.
Standard Chartered is sole lead on the deal and Dewey Ballantine issuer counsel, while Mayer, Brown, Rowe & Maw is advising the arranger. The Peruvian bank is looking for a favorable asset-to-liability match with this issue, said a source close to the deal. The lion's share of proceeds will go to fund mortgage origination, which has been growing briskly this year. The bank's mortgages are denominated in dollars, in line with the denomination of the upcoming bond. Another $73 million in proceeds will be used to pay down the entire volume of outstanding paper from the same DPR program, according to a source familiar with the deal.
The bulk of Banco de Credito's collections, nearly 70% in the first half of 2005, are linked to exports. Worker remittances, meanwhile, have slid to 10% of flows, in contrast with the business in Central America, where ex-patriots contribute a much larger chunk of the industry's DPR collections. The Peruvian bank's heavy dependence on export flows makes the transaction vulnerable to swings in oil and metal prices, according to a report by S&P. This risk, however, is tempered by expanding export capacity and new gas exports, among other factors. Peruvian exports have soared 85% over the last four years.
Among the transaction's strengths cited by S&P is the projection of a robust debt service coverage ratio, which should top 71 times for the 12 months that ended in September, the agency said. The bank's payment order processing business has grown by more than 81% between 2000 and 2004. The deal also features DSCR and ratings triggers.
Potential perils facing the deal include a Peruvian economic slowdown and sovereign interference. While S&P played down the risk that the government would block the flows - after all, the collections bring dollars into the country - the agency suggested that it could try to rechannel payments away from the correspondent banks designated by the deal. Such an event, however, has yet to take place in any deal backed by financial future flows, the agency said.
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