Chile's BHIF Leasing is securitizing its house leasing contracts, in what will be the second Chilean deal involving house leases, after a $7 million transaction for Banco Santander Central Hispano.
The transaction involves approximately $13 million in notes denominated in units pegged to the inflation rate (UFs). The notes will have a 20-year final maturity - which is the maximum length of a leasing contract - and a AAA rating from Duff & Phelps Credit Rating Co.
In Chile house-leasing contracts are a popular way of buying real estate among young and lower-income segments of the population. The system works as an alternative to mortgages. The lessee makes monthly payments to the bank or leasing company but the property belongs to the bank until the last payment is made.
The system presents several advantages for securitization because it makes foreclosure procedures faster and simpler. If a lessee is unable to make payments the bank, which owns the property, regains possession of it automatically. In this way, the Chilean leasing system avoids the lengthy and complicated judicial processes leading to foreclosure (the process takes around seven months as opposed to 18 with regular mortgaged homes).
"Insurance companies are the main investors interested in this type of paper," said Jorge Chang, analyst with DCR in Chile. "We expect four similar deals in the local market this year."