Mirroring cross-border activity, domestic issuance in Brazil picked up in the second half of 2003. But unlike the large banks and exporters that tap the dollar market, local issuers had to contend with an ugly interest rate environment. Fund managers stuck to yieldy treasuries and shunned what they saw as esoteric product. But as rates came down in the second half, issuers came out to play. Investors had to "manage money instead of throwing everything into treasuries," said one Sao Paulo source.

Most glommed on to a new vehicle that promises to invigorate the market even more in 2004. Receivables investment funds (FIDCs) came into their own last year, accounting for about R$1.8 billion (US$637 million) of public and private securitization issuance, according to data compiled by Fitch Atlantic Ratings. A much lighter tax treatment than other vehicles is what turned issuers on to FIDCs. Their appeal, players say, will only grow. "The horizon looks bright for [FIDCs]," said Patricia Bentes, managing director of financial consultancy Hampton Solfise. "There's lots of new issuance expected in 2004."

Among the FIDCs that closed last year, trade receivables and consumer loans proved to be the most popular asset classes in terms of volume (see table below). Investors bought up both closed- and open-ended funds. The heftiest deal was a US$500 million (US$175 million) fund for Companhia Brasileira de Distribuicao, backed by a variety of trade receivables. Underwriter Rabobank is understood to have kept the transaction on its books.

More of that is expected this year, as the economy recovers from a slump. Overall debt issuance locally is also expected to get a boost from a new law enabling companies to use local issuance to offset taxes. This was implemented expressly to encourage domestic activity, said Ricardo Leoni, vice president of Banco Santander in Brazil.

Issuers have another incentive as well. Having lived through the ruthless credit crunch before and after presidential elections in October 2002, they now understand that bank lines can be fickle. "Some companies are now realizing that they should diversify their funding sources," said Jayme Bartling, director of structured finance at Fitch Atlantic.

While AB volume was overshadowed by the FIDCs, real estate deals trickled into the market as well. Walter Torre closed a couple of deals backed by leasing agreements with familiar names Telesp and Nestle. Most other real estate transactions were tiny and issued by special securitizing agents (see table, p. 20).

Over the next few weeks, players will be watching the fate of a Parmalat-linked FIDC very closely. With Itau BBA as lead bookrunner and Santander as co-lead, the R$150 million (US$52 million) deal closed Nov. 25.

Investors apparently understand that the underlying risk is linked to the Parmalat clients, but they have still lost faith in the company in light of the much-publicized corruption at the parent. Fund investors, who met last week, decided to convene again on Jan. 19 in order to decide whether to redeem all shares. Most players believe the short-lived fund will end up paying down entirely and, as such, should strengthen investor confidence in the FIDC sector.

In Colombia, MBS and

rascally cattle ranchers

The main story in the Colombian market in 2003 was continued issuance by Titularizadora Colombiana, the country's version of Fannie Mae. In its steady efforts to build up an RMBS market in this volatile market, Titularizadora had issued Ps1.85 trillion (US$673 million) by the end of 2003. The agency is expected to sustain issuance at a rate of two per year over the next few years.

Boosters are hoping that plans to eliminate tax-exempt status for these bonds will not drastically dampen appetite. To date, the bonds have priced tight to local treasuries, thanks to the tax perk.

Elsewhere in Colombia, the agriculture and commodities sector - a mainstay of local securitizations - offered little in 2003, except for a couple of sugar deals. A pair of palm oil-backed deals languished in the pipeline all year, while talk of other agro-deals had yet to end in anything concrete.

The sector did, however, provide some drama, as a downgrade hit a cattle head deal when news surfaced that participating ranchers were selling securitized cattle and pocketing the proceeds, instead of channeling them to the SPV.

Chile: stable but future

flows fizzle

The year began with deep promise for diversification in Chile and ended with a bit of the same old assets in the housing sector. The country saw Ps228 billion (US$402 million) in securitization issuance, as tracked by ASR (see table, p. 21). The most noteworthy transactions were a pair of tuition-backed deals led respectively by ABN Amro Securitizadora and Securitizadora Interamericana, a unit of American International Group.

They marked the first future flow transactions in the Chilean domestic market. Unfortunately, after the second closed in June, there were no more during the year. "There were complicated tax issues," said Alejandro Sierra, director of Moody's affiliate Humphreys. Other sources said that regulators were uncomfortable with the new asset type and often drag their feet with new assets.

Nevertheless, another new asset, government contracts, was introduced into the pool of eligible assets. Furthermore, a new credit card deal was added to the inaugural transactions of 2002.

Up ahead, players expect economic stability to underpin continued growth, though no one foresees anything spectacular. "The conditions are going to remain favorable," said Jose Vial Cruz, CEO of BanChile Securitizadora. Those include low interest rates and economic expansion. Trade receivables are among the assets players are eyeing.

Argentina consumer,

export sectors rebound

Even though a massive debt default hung over the country all year, Argentina's domestic economy rebounded from a protracted recession. The devaluation created an export-friendly environment and consumers returned. Most of the transactions that closed last year were consumer-related, while a handful involved companies that sell abroad.

For the most part, volumes were meager. The 20 transactions tracked by ASR amounted to the equivalent of US$129 million (see table, p. 21). The size of individual deals is expected to rise slightly this year. Players also expect a wider variety of assets, including trade receivables. "There are new companies that will come to market," said Mario Kenny, a partner with law firm Nicholson y Cano.


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