Capitalizing on Colombian investors' new familiarity with the residential housing sector, Banco Colpatria issued a Ps73 billion (US$25.8 million) MBS on Dec. 18. The country's homegrown Fannie Mae, Titularizadora Colombiana, gave birth to a domestic MBS market last year with two issues totaling Ps588 billion (see ASR 11/25, p. 16) and Colpatria saw an opportunity to move in as well.

"Investors became more comfortable with assessing the sector," said a source close to the deal. He pointed out that the Colpatria paper enjoys the same tax exemption as Titularizadora's bonds - one of the main reasons investors had embraced the latter.

The Inter-American Development Bank (IDB) provided a partial guarantee worth up to 10% of the issue. At the same time, Fannie Mae, provided technical support in selecting mortgages. "Both these agencies have been instrumental in getting investors interested," the source said.

Yet it appears that lead bank Santander Investment struck too close to Christmas. Though demand for an eight-year piece was double the supply, the bank sold only 30% of a five-year tranche and aims to sell the rest at the end of January. "The timing was a little off, mostly because of vacation," said the source. The bank is said to be confident it will sell the rest at the prevailing rate.

At auction, Santander sold roughly Ps28 billion (US$9.9 million) of a total Ps93 billion five-year at 5.5% over the UVR inflation index. Sized at Ps45 billion (US$15.9 million), the eight-year tranche yielded 6.19%. Pension funds, banks, insurers and retail investors bought in.

Fitch Ratings affiliate Duff & Phelps rated the deal AAA' on the national scale. Apart from the IDB guarantee, the deal's enhancements include a 25% overcollateralization and a reserve fund equal to a single payment of interest and principal. About 37% are government-backed loans to low-income borrowers.

In an "activation event" the bank is obligated to beef up the reserve account to three times the upcoming interest and principal payment. The trigger episodes include a drop in the current value of the mortgages to below 118% of the outstanding issue or an over 18% default rate on the pool during a three-month time span.

A more serious "grave event" forces the bank to bring the reserve account to four times the next payment. These include such improbable scenarios as a state takeover of Colpatria.

Helm Trust is the trustee on the transaction.

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