Following weeks of wait-and-see, Colombia's version of Fannie Mae pounced on signs of eased investor anxiety and placed the country's second ever MBS on Nov. 19. A mammoth by local standards, the Ps588-billion (US$220 million) issue brings the total pool of peso-denominated MBS to Ps1.07 trillion (US$400 million).

"There were investors who were scared of going medium-to-long term and our deal was precisely those maturities," said Mauricio Amador, vice president of finances for Titularizadora Colombiana. "[Still] we were pleased with the results."

The agency is already cobbling together another Ps1 billion for issuance in 2003. The ultimate aim is to securitize 40% to 50% of Colombia's volume of mortgages, estimated at roughly Ps10 billion (US$3.7 billion).

In both spread and yield terms, the transaction fared worse than the first one in May. The average weighted yield on the five, 10, and 15-year deal was 5.37% over the UVR inflation index (see Table 1 for results). Duff & Phelps rated the deal AAA' on the national scale.

Depending on the maturity, the deal priced 150 to 180 basis points tight to Colombian treasuries, according to sources. The first transaction, however, came at a weighted average of 250 basis points inside treasuries. MBS returns are tax-exempt, virtually assuring they will yield tight to government paper. But the migration away from treasuries during the last several months, the spreading conflict against leftist rebels and volatility imported from Brazil have damaged investor appetite for just about any paper.

The distress has subsided over the last few weeks, but not enough to bring back the calm enjoyed earlier in the year. The novelty of the inaugural transaction played a part in its pricing as well. "The first issue did scandalously well," said Claudia Salcedo, an analyst with Duff & Phelps. "The bid-to-offer [ratio] was nearly nine times."

Sources saw other bright spots in the second deal as well. A trader of a bank that didn't buy in, for instance, said substantial purchases from the non financial sector were a "particularly good sign."

Thanks to the tax exemption, companies took 16.4% of the Ps168.6 sold at a Dutch auction in the first phase of the deal. The auction determined the final price, with banks (37%) and pension funds (20%) picking up the bulk.

The second, much bulkier phase was comprised of underwriting, primarily by the deal's three originators: Banco Conavi, Banco Colmena and Banco Davivienda. In the end, the trio snapped up about 70% of the total Ps588 million (US$220 million) (see Table 2 for final investor breakdown).

Judging from the first issue, chances are the originators plan to gradually filter the paper into the market. "With the first transaction, the originators bought 75% of the deal, but now they've sold about 25%, meaning 50% of the deal is in public hands," Amador said.

One of the deal's main enhancements is an effective 28% guarantee from the government via the same percentage of the portfolio that is comprised of loans to low-income individuals. The other 72% of the portfolio is backed by a token 1% guarantee from the International Finance Corporation (IFC). The IFC holds a 21.25% share of Titularizadora. Other shareholders include Banco Davivienda (21.08%), Banco Colmena (21.08%), Banco Conavi (20.93%) and others.

For future issues, Amador said Titularizadora is open to working with other guarantors. "We've had other multilateral institutions offer us coverage," he added. "We'll go where we can get the best conditions under the lowest cost."

Colpatria goes it alone

Meanwhile Banco Colpatria, which participated in Titularizadora's first deal, has crafted its own mortgage bond. Sized at Ps135 billion (US$50.5 million), that deal carries a 10% guarantee from the Inter-American Development Bank (IDB). "This is the first time the IDB adds an enhancement to a mortgage deal," said a source familiar with the deal. A rating from Duff & Phelps on both the transaction and Colpatria itself are due out imminently. The bond will have maturities of five and eight years.

Colpatria's deal will differ in structure from Titularizadora's bonds, but sources say the smaller deal will help activate the broader MBS market by spurring investors to develop their analytical capacity in the housing market.

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