Mexico's BBVA Bancomer apparently closed a US$300 million, seven-year deal just days before its Spanish parent company Banco Bilbao Vizcaya Argentaria formally bid on the 40% of the bank it doesn't own. Many players were skeptical that Bancomer would return to tap its credit card program following the last deal in April 1999.

After the highly rated parent reached 60% of its unit in July 2000, the common wisdom was that funding was now cheapest from the other side of the Atlantic. With the Spanish bank pushing for full control four years later, funding in U.S. dollars via securitization becomes even more intriguing.

"People were a little surprised that they'd do this now," said one source close to the deal.

First, the basics of the transaction: Harris Nesbitt was lead and is understood to have dropped it into one of its conduits. The underwriter declined comment.

Nesbitt has a longstanding relationship with the Mexican bank, having managed most of the credit card deals Bancomer has issued over the last decade. In total, Bancomer has securitized credit card vouchers for US$1.63 billion. On the latest deal, MBIA provided a wrap, earning it a triple-A rating from all three international agencies.

Legal counsel, according to sources, included Mayer, Brown, Rowe & Maw as cross-border counsel for the underwriter; Cleary Gottlieb as cross-border counsel to the issuer; Dewey Ballantine for MBIA; and Jauregui, Navarrete, Nader & Rojas as domestic counsel to the underwriter.

Mexican entities have been glaringly absent from the cross-border securitization market for over a year, displaced almost entirely by their Brazilian counterparts. For the bigger issuers in Mexico, the two main deterrents have been their investment-grade status - which promotes plain vanilla over structured paper - and an increasingly vibrant home market. But for some entities, namely Bancomer and Citigroup-owned Banamex, having a foreign-based parent adds another variable to the equation: that of a deep-pocketed, presumably open-armed funding source.

Despite that, Bancomer might have reaped significant cost advantage to dipping into its dollar program, according to sources. The coupon on the seven-year was 4.1%, but final pricing on this conduit-driven deal was not disclosed. At any rate, sources said the all-in cost of funds for the Mexican bank was sharply lower than it would have been just a few years ago. With underlying ratings on the credit-card deal of A' from Standard & Poor's and Fitch Ratings, "it's fair to assume that pricing for the insurance [policy] was favorable," said a source close to the deal. MBIA declined to comment on the issue.

In a sure sign that MBIA has been courting Mexican risk, the guarantor has already wrapped two toll-road deals in the domestic market, for a total peso equivalent of roughly US$627 million.

There are other possible reasons BBVA broke the cross-border hiatus

it took five years ago. "They're keeping open the channels of alternative financing", said Gary Kochubka, director of Latin American structured finance at S&P. Even with the parent boasting a ratings of Aa2'/'AA-'/'AA-' by Moody's Investors Service, S&P and Fitch, respectively, the issuer may decide to eventually come back under the full control of BBVA, sources said. "There are U.S. entities in the A-' category that still find it reasonable to do securitizations at the rate they got," said a source close to the deal.

What's more, securitization issuance from a Mexican bank fully owned by a highly rated foreign parent would not be unheard of. Banamex did so in December 2002, when it was already fully owned by Citigroup. But the fact remains that the bank did not return last year.

BBVA Bancomer, the corporate, is rated Baa2'/'BBB-'/'BBB-' by Moody's, S&P and Fitch respectively. Following the Spanish bank's bid for full control of its Mexican unit to the tune of 3.3 billion (US$4.2 billion), Fitch affirmed its long-term ratings on Bancomer. On the other hand, the agency said that if successful, the offer "opens the possibility for a potential upward review to its long-term local currency rating."

The credit card transaction is a fairly standard securitization of future merchant Visa and Mastercard vouchers. Among the factors bolstering the underlying ratings are overcollateralization in the form of high debt service coverage; the key position of the merchant voucher business in the bank's strategy; and the country's consistent appeal to international tourists, particularly those from the U.S.

The importance of the originator to the Mexican banking system was cited as well. BBVA Bancomer is the largest commercial bank in Mexico with a share of more than 25% of bank assets in the country, according to Fitch. BBVA has had management control since July 2000. The Iberian financial giant, for its part, is Spain's second largest banking group and ranks among the top 15 in Europe, by equity. The bid must past muster with both Spanish and Mexican regulators.

Going forward, the combination of a deepening local market and accessible funding for plain vanilla issuance will keep Mexican issuance in the cross-border market few and far between. Apart from a securitization of bridge loans for construction that Dresdner Kleinwort Wasserstein is expected to bring to market for originator Metrofinanciera within the next few months, there may be one or two other bank deals, but that is all. "Bancomer is going to be one of few," a source said.

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