The Mexican state of Chihuahua securitized toll road receipts in two deals in 2002 and returned last year to tap the excess flows from those structures. Now it's setting its sights on a different asset class: federal co-participation revenue, which comes from direct payments by the central government to states and municipalities. Timed for mid-October, the deal is sized at Ps1.2 billion ($111 million), with a final maturity of 10.25 years and a duration of 4.17 years, according to a source familiar with the transaction. The placement agent is Acciones y Valores a unit of Banamex, which is, in turn, owned by Citigroup Inc. The structurer was Corporativo en Finanzas.

Proceeds from the deal will go to pay down a loan of the same size, owed to Banobras, BBVA Bancomer, and Banamex. The loan bears a rate of 7.5% over UDI, Mexico's inflation-indexed unit. The issuer expects to cut its financing costs with the bond, the source said. To protect itself against a spike in rates during the first five years of the deal, the state will buy a 15% cap for that time frame.

Fitch Ratings and Moody's de Mexico have rated the deal AAA(mex)' and' on their respective national scales. Moody's also assigned a Baa1' rating on local currency global scale.

Early last week, Moody's upgraded Chihuahua to' on the national scale and Baa3' on the local currency, global scale from' and Ba1', respectively. The catalysts for the upgrade were "a sustainable trend of low debt indicators and a financial profile characterized by a high level of own source revenues and a record of either balanced or surplus financial operations," the agency said in a release. Among the credit's weakneses is its pension liability, which the government has recently been covering with budget transfers. Since 1998 participation revenue has averaged 13% growth, even factoring in a decline posted in 2002.

Bordering the U.S. states of New Mexico and Texas, Chihuahua's economy moves in sync with that of its northern neighbor. The Mexican state outpaced its peers in economic growth from the late 90s to the early part of this century, as maquiladora factories mushroomed in response to robust manufacturing demand in the U.S. By the same token, the recent U.S. slowdown frayed the Chihuahuan economy, but primarily on the edges. According to a Fitch report, most maquiladora factories have stayed open over the past few years, weathering the decline in demand by whittling down workers' hours. Chihuahua scores higher than the national average in such indicators as infrastructure, education, and basic services.

Revenue for the state totaled an estimated Ps19.4 billion in 2004, according to figures compiled by Fitch. Federal co-participation payments made entirely to the state, excluding those passed on to municipalities, equaled about Ps5.3 billion.

Elsewhere in Mexico, broadcaster Television Azteca recently tapped the securitization market for Ps1.4 billion in a six-year bond backed by future air time to be purchased by advertisers. The deal priced at 215 basis points over 28-day TIIE. Fitch, the only agency rating the transaction according to the prospectus, assigned a AA(mex)' to the securitization. The lead was Inversora Bursatil, with Grupo Bursatil Mexicano co-managing.

The transaction is the second off a Ps4.5 billion program. The first, sized at Ps2 billion, came out at the end of last year. Overall, the program is backed by 22.5% of all the future payments for advertising spots. A commensurate volume of receivables backs each issue.

TV Azteca beams its signal to one third of the national television market through Channels 7 and 13. The company runs one of the largest Spanish-language media empires in the world.

Lastly, Mexican state credit agency Fondo de Fomento y Garanti para el Consumo de los Trabajadores (Fonacot) placed its fifth issue backed by consumer credit to workers. The Ps1.5 billion, two-year bond priced at 39 basis points over 28-day TIIE and was rated AAA(mex)' and mxAAA' by Fitch and Standard & Poor's, respectively. The lead manager was Scotia Inverlat.

The deal kicks off a Ps5 billion shelf. Prior to this transaction, the issuer had registered a new program every time it switched from longer-dated bonds - those over a year - to paper maturing under a year. Under the new shelf, the company can freely bounce back and forth between maturities, according to a source familiar with Fonacot.

The last time Fonacot tapped the market was in March, when it floated a two-year bond.

Scotia Inverlat is presently readying a second issue from micro-finance lender Compartamos, with a partial guaranty from the International Finance Corp. The issuer made its market debut July 28, 2004, when it placed a Ps190 million deal (see ASR 8/2/04).

(c) 2005 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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