Colombian brewery Bavaria served up a 10-year, Ps350 billion ($136 million) securitization of forward contracts last week to local investors. Led by Bogota-based shop Correval, the deal closed at 7.15% plus CPI. As Fitch Ratings affiliate Duff & Phelps already rates the corporate an unbeatable AAA' on the national scale, the securitization was prompted entirely by balance sheet considerations and was not a vehicle for reaching a more conservative - or even new - crowd of investors. The structure has the same rating.

Also, from the investor standpoint, the risk of the transaction is not particularly detached from the originator, since the two obligors, Leona and Cervunion, are units of the same holding company as Bavaria. The collateral is made up of futures contracts covering the sale of barley and malt to the obligors, which brew beer from the raw material.

The agreement between originator, which imports the raw material, and obligors lasts 10 years, but its terms are renegotiated every six months. The base scenario for the deal assumed that the prices of the commodities would equal their average for the last decade and that CPI would hold steady. The deal would still manage to muddle through in a stress scenario where CPI edged up two percentage points every year and the price held at its lowest annual level for the last decade, according to a report by Duff & Phelps.

In an exceedingly bearish price environment, whereby the volume needed to cover bond payments would outstrip the obligors' processing capacity, Bavaria would repurchase the barley and malt and find breweries elsewhere. Cervunion and Leona typically absorb 55% of the amount that Bavaria imports of the two commodities.

One-Note CDO

Bavaria's imprint is also on a program structured by Finanzas Estrategicas. The arranger has so far sold $50 million of paper backed by the company's Rule 144A 8.875% notes due 2010. Citigroup Global Markets led that issue, amounting to $500 million, in October 2003.

As Colombian regulations bar local investors from purchasing foreign bonds directly, shops like Finanzas have created a cottage industry of snatching bonds from abroad at a discount and then peddling securitizations of that paper to domestic buyers at either par or a premium. In this particular program, thanks to currently robust demand for the collateral, Finanzas has temporarily stopped at $50 million, although it has registered a $100 million shelf with Colombian regulators for a two-week period starting March 2004.

"The Bavaria bonds are now trading at around 107, so it's not a good opportunity," said Fabiola Latorre, portfolio manager at Finanzas.

Copyright 2004 Thomson Media Inc. All Rights Reserved.

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