Mercedes Benz Leasing Argentina recently completed its first local securitization of car loans for just over $153 million. ING Bank acted as the fiduciary agent for the transaction, which was fully subscribed by institutional investors and private banking clients.

The one-year notes represent the first offering from the company's $500 million securitization program.

The deal was split into three tranches: an $88 million A tranche with full guarantees from the company at an annual rate of 7.5%, a $48 million B tranche structured as a participation certificate at an annual 8.5% and a $17 million C tranche that is also a participation certificate.

The A tranche was rated triple-A and the B tranche was rated triple-B by Duff & Phelps Credit Rating Co. and Thomson Financial Bankwatch. The lowest tranche was retained by the company.

"Mercedes Benz controls a large share of the local market and, as a result, the number of assets on their books has increased substantially in the last few years," said Miguel Arrigoni, associate with consulting firm Ernst & Young Corporate Finance, which coordinated the deal. "By securitizing, the company was able to obtain added liquidity through a financial instrument that is already well known - and well received - by the local market."

Indeed, thanks to an improvement in the country's financial prospects and a tailor-made securitization law, the volume of local deals in Argentina tripled during 1999, reaching $1.5 billion.

"Mercedes Benz is expected to come to the market again during the second quarter of the year," said Arrigoni. "Given the success of this transaction, we anticipate that other car leasing companies will structure securitizations."

Meanwhile, an Argentine textbook publisher and school supplies wholesaler Angel Estrada was back in the market with the second offering from its ABS program Secures. The $12 million deal follows an identical structure as a $10 million transaction launched in January last year.

The latest transaction consisted of $4 million in participation certificates and $8 million in bonds at a rate of 15% and was placed by Banca Nazionale del Lavoro in the local market.

"The company's sales follow the school year calendar," explained Pablo de Gregorio, a partner at Ernst & Young in Buenos Aires. "Their sales season starts in September and by December they have enough credits in their books to securitize."

Gregorio added that securitization has proved to be a good strategy for Angel Estrada, because it provides the company with a more homogeneous cash flow throughout the year.

"The main risk with these transactions is the fact that the clients from which Angel Estrada generates its receivables are small book shops around the country," said a source familiar with the deals. "These are very small players and they could go bankrupt at any time."

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