Under the stormy cloud of a relentless political corruption scandal, Chile's Santander Sociedad Securitizadora issued a bond packed with government risk in mid-January (see table). The domestic deal is backed by future payments to a public works company from the Ministry of Public Works (MOP), which has drawn a battery of bribery accusations since October.

Yet investors, undeterred, bought in. "Sure it's state risk, but the payment contracts are super solid and the regulatory framework is intact," said an official at a pension fund that snatched a piece. "Despite all the noise, I don't see any way they wouldn't make good on these payments." The novelty of the asset type proved another draw, he added.

"There were some legal questions as to the timing of the payments (on the collateral)...but in the end it was all cleared up," said Maria Paz Hidalgo, CEO of the securitizing agent.

Chile's ruling coalition has been rocked by a bribery scandal that erupted Oct. 25, when a prominent businessman publicly accused a former undersecretary of transport and other ex-officials of accepting kickbacks in awarding a concession contract. The scandal snowballed, engulfing past and present members of the government and leading a court to strip five congressional representatives of legal immunity. The latest accusations contend that the MOP overpaid at least one consulting firm for work on a project.

To be sure Public Works has been one of the ministries most marred by the scandals, but the deal came through unscathed. "It was entirely bought by outsiders," Hidalgo said. Apart from the typical demand from pension funds, the paper was also sold to banks, brokerages, and, in the case of the shortest-dated tranches, retail investors.

Despite the intense media play surrounding the bribery scandals, Chile's government remains one of the cleanest in the world, according to global corruption watchdog Transparency International. In its Corruption Perceptions Index, Chile ranked 17 in 2002 among over 100 countries. The country has also held firm to its investment-grade ratings of "A-" and "Baa1" from Standard & Poor's and Moody's Investors Service, respectively. S&P has the country's outlook at positive.

The collateral for Santander's deal are rights to receive payments that the Ministry owes the concessionaire Costanera Norte, for a road project that slices through the capital of Santiago. The money owed is for projects by Costanera that have been already completed and represent work beyond what was stipulated in the original concession contract. The bond is multi-tranche, with a handful of maturity dates (see table). Payment dates on the bond are timed to come after scheduled payments on the collateral. All tranches are coupon-free and callable; if the Ministry pays before the maturity date, the tranche will be called.

Fitch Ratings and S&P affiliate Feller Rate gave the deal top-notch ratings of AAA' on the national scale. "The flow of assets and a reserve fund are enough to cover the trust's obligations even in the crisis scenario associated with the rating," Feller said in a release. Though the asset is untested, the structure is legally uncomplicated, according to the agency.

Chile's third credit card deal

Elsewhere in the Chilean market, BanChile Securitizadora issued the country's third ever credit card deal in mid January backed by receivables generated by Efectivo. Sized at Ps26.7 billion (US$36 million), the deal priced tight to its predecessors. "We conducted a very intense sales effort," said Jose Vial Cruz, CEO of BanChile Securitizadora. The senior tranche, amounting to Ps17.7 billion (US$24 million), yielded 6.9%.

It received a double-A rating on the national scale by Feller Rate and Moody's affiliate Humphreys. Rival securitizer BCI Securitizadora handled the sector's inaugural deals, Ripley and La Polar (see ASR 12/16/02, p.16 & ASR 11/25/02, p.17). Like the Efectivo deal, La Polar was rated double-A, but it priced at 7.15%.

Pension funds and mutual funds were the main buyers on the BanChile deal. Efectivo is the issuer of the Multiopcion credit card, which is used for purchases in shops that are part of the Johnson's group of department stores. The bond has an expected maturity of three years, and a legal final maturity of four years.

Copyright 2003 Thomson Media Inc. All Rights Reserved.

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