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Deals: Latin America - Argentine Water Body to Splash Out

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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