Aguas Argentinas S.A., the company that operates the water and sewage systems of the city of Buenos Aires and its 17 surrounding districts, is coming to market with a $100 million securitization.

Morgan Stanley Dean Witter will be the arranger for the transaction, which received a BBB-minus foreign currency rating and a AA local currency rating from Standard & Poor's.

The deal's structure is very similar to the one used by Morgan Stanley for a $101 million synthetic transaction for Argentine energy conglomerate Perez Companc (ASRI 7/26/99 p.10). Aguas Argentinas will issue notes through an offshore subsidiary. The notes are then sold to a trust in Argentina, which in turn issues structured bonds backed by the offshore-originated notes.

The innovative technique was designed by Morgan Stanley as a way to eliminate certain Argentine tax burdens. By using a trust, Aguas Argentinas will not be subjected to a 4.9% municipal tax on the total amount of the offering as well as a 15% tax on the total amount of interest payments due to investors.

"It is really a future flow securitization," explained a source familiar with the deal. "It is a very good way of getting around some tax provisions and I think that Morgan Stanley will be able to sell this structure to other issuers."

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