As issuance in the Northern Hemisphere drifts into the seasonal slumber of August, activity on the wintry side of the globe is, if anything, picking up. Remote from the summer slowdown in New York and London, Argentine issuers are out peddling deals and the action is in consumer assets.

Thirsting for funds and ignored by banks, originators of consumer assets in Argentina are turning increasingly to the securitization market. "[Issuers] see these instruments as being more flexible and, for investors, they're increasingly attractive," said Sergio Capdevila, head of trust services at Banco de Valores. While the rates on consumer loans and credit cards are still prohibitively high for many borrowers, consumption is steadily rising in line with economic growth, projected at 4% to 5% this year.

Having broken a protracted silence with a Ps9.6 million (US$3.3 million) deal at the end of 2002, Tarjeta Shopping in Argentina is again making noise. Sized at Ps13.75 million (US$4.8 million), a new two-year deal from the credit card issuer is due out this week, according to Hernan Gutierrez, managing director of trust services at ABN Amro Argentina, the trustee of the transaction. "The sector is growing," he added, "and as this continues, rates will continue to fall."

BACS Banco de Credito y Securitizacion structured the bond, which it will co-issue with Banco Hipotecario. Enjoying a virtual monopoly in this sector, Nicholson y Cano is counsel for the transaction.

A senior tranche amounts to Ps11 million (US$3.8 million) and is rated raA+' by Standard & Poor's. The bulk of enhancement comes from an unrated subordinated piece worth Ps2.75 million (US$950,000). The originator is expected to swallow that tranche, which has the potential for yieldy returns given the projected massive spread between the rates on the collateral and the paper.

Backing the transaction is a portfolio of revolving credit card vouchers. The card is used in a host of shopping malls and hyper-markets. Consumers can use the card to pay up front or in quotas and to obtain cash through ATMs. As of April 2003, the card had Ps42.2 million (US$14.6 million) in assets, yielding an average rate of 62%. Delinquencies past 180 days hit 10%; payments are monthly.

Bazar Deal

From another corner of the consumer sector, electronics and white goods chain Bazar Avenida is in the wings with an imminent placement, sized at a total Ps12.5 million (US$4.3 million). Moody's Investors Service is heard rating the deal' Its structure is said to resemble Megabono, a deal that closed June 25. The Ps6.6 million (US$2.3 million) senior piece of Megabono priced at 13.89%, with a bid-to-offer of 3X. Enhancement came from a 20% subordination. Collateral is comprised of a portfolio of consumer loans originated by store Electronica Megatone and finance company Confina. Most purchases in the pool are made through the Megatone credit card. Along with the Carsa chain, Bazar Avenida and Electronica Megatone operate under umbrella network Red Megatone. This trio shares suppliers in pursuit of economies of scale and they avoid competing in the same areas. Carsa is expected to come out

with its own deal further down the road.

Banco de Valores and Compania Inversora Bursatil led Megabono and Nicholson y Cano provided legal counsel. To date, the same joint leads have issued two deals for Consubond, backed with consumer loans originated by Banco Saenz. The most recent, Consubond XIX, closed on June 30 at a yield of 13%. The bid-to-offer ratio nearly hit 3X.

The most recent consumer deal to close in Argentina was for Garbarino, a chain devoted to white goods and electronics. Sized at Ps16.5 million (US$5.7 million), the deal was backed by personal loans extended through the Garbarino card, issued by the chain. The senior tranche amounts to Ps8.7 million (US$3.0 million) and enjoys a 15% subordination from two subordinated pieces. The senior piece priced at 11%, considerably tight to the coupon of 13%. Lead Banco Patagonia Sudameris closed the transaction Aug. 8. S&P rated the senior slice raA+' on the national scale. The loans backing the deal bear an average annual yield of 81%.

Dwindling options have coaxed Argentina investors into structured deals. The yield on treasuries known as Lebacs has dropped steadily since the beginning of the year. One-month Lebacs are down to 1.2%, while 3-month treasuries are yielding around 4%. The figure was over 30% earlier this year, in part due to concern of galloping inflation.

Rates charged consumers have not dropped as sharply, but they are expected to continue coming down, particularly if the low financing costs for originators tapping the securitization market holds. "Consumers are borrowing more in the three-to-six month period and the trend is for rates to fall," said Martin Fernandez, an analyst at Moody's in Argentina.

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