With a new arranger and better market conditions, Argentina's Banco Hipotecario Nacional (BHN) is back in the market with its fourth international MBS transaction: BHN IV Mortgage Trust Series 2000-1 (BHN IV).
The residential mortgage deal will be worth at least $100 million, though it may be bumped up to as much as $175 million, depending on demand.
It is being managed by Bear Stearns in New York. The notes have a 2.9 average life and pricing is said to be 400 basis points over Treasurys.
A high-quality pool of mortgages, added to a convertibility insurance from Zurich U.S. Political Risk enabled BHN to receive A1 and A-plus ratings from Moody's Investors Service and Fitch IBCA respectively.
Warburg Dillon Read (WDR) had originally pitched the deal last year, but the offering never took off. At the time, market players argued that BHN IV suffered from a less than hospitable market and the insurance policy was not enough to lure investors.
"I think that at the time investors were not educated enough and comfortable enough with what this policy provides," said Mia Koo, analyst with Fitch in New York. "This time the market has had more time to get a better feel for the value that the insurance adds to the transaction."
Once again, the policy showed up the differences between the rating agencies. Moody's and Fitch felt comfortable rating the deal above the sovereign ceiling, while Duff & Phelps Credit Rating Co. and Standard & Poor's argued that ratings should only pierce the sovereign ceiling when there is a fully-funded offshore reserve fund.
Some investors also felt that the rating was aggressive saying that the inconvertibility insurance, which protects against the risk of transferring dollars to the offshore trust but not against a currency devaluation, does not address other important issues that could affect the transaction.(see ASRI 9/20/99 p.1)
With the deal in limbo, Bear Stearns stepped in and snatched the mandate from WDR. "We have been beefing-up our presence in Latin America and we have one of the best MBS groups in Wall Street," said a Bear Stearns official. "So we saw this as a good opportunity."
The transaction finally launched earlier this month. Given the more favorable market conditions Bear Stearns now expects to place the notes in the next couple of weeks.
"I believe there's a fair amount of animosity between WDR and Bear Stearns over this transaction," said an investor who is looking to participate in the transaction. "It seems to me that either one could have gotten the deal done, it was more a matter of timing than anything else."
BHN IV is the first MBS offering with political risk insurance. "It is very exciting," said Dan Riordan, managing director of Zurich U.S. Political Risk. "I believe it really demonstrates that there is a variety of capital market type transactions that can benefit from political risk insurance and I think we'll see other structures such as future flow deals featuring such products in the future."
For some investors, however, the political insurance is not an issue in the case of BHN IV. This is mainly due to the fact that Argentina's foreign rating was recently affirmed by S&P and the country's political and economic outlook is relatively stable.
"I think that the general message of political insurance is that it is more helpful from the standpoint of ratings arbitrage," explained Paul Aronson, vice president at Lincoln Investment Management, Inc. "But you have to be comfortable with the general fundamentals of the deal, it helps some but it's not a cure-all."
