With Bear Stearns' fate far from determined, the future of the bank's Latin American structured finance business is likewise uncertain.
At press time, however, it appeared to be business as usual. Bear is reportedly close to pricing an ABS in the region, which may be a talked-about auto transaction for Ford Credit de Mexico. That deal is private, and a spokeswoman at the Ford Motor Co. declined to comment.
The bank isn't registered as a broker-dealer in Mexico, but it reportedly was in the process of obtaining a license. It remains to be seen whether an ownership change at Bear would mean a withdrawal of the application, a source familiar with the company said.
Bear's first steps in Mexico's domestic ABS market follow those of a troop of global rivals who have dug their heels into RMBS and other asset classes in the peso arena, including the likes of Citigroup, Deutsche Bank, Credit Suisse, HSBC and Merrill Lynch.
Over the last several years, Bear has carved out a niche in the Caribbean and Central America, specializing in sub-investment-grade deals that straddle the line between project finance and ABS. This has often meant that its deals don't appeal to the same structured finance investors in emerging markets with a predilection for wrapped or investment-grade paper from countries such as Brazil and Turkey.
Unlike most other players in Latin American structured finance, the bank hasn't arranged deals in the future-flows asset class in the region, yet it has executed transactions in that asset class in other emerging markets, according to a source knowledgeable about the bank. Nearly a year ago, Bear poached future-flows veteran Ron Dadina from MBIA.
Two real estate transactions that closed in the last couple of years in Panama and the Dominican Republic exemplify the kind of deals that Bear is known for in the structured finance realm. The most recent is a seven-year $220 million bond for Newland International Properties, which priced last November at 10.25%, according to news reports. Fitch Ratings and Moody's Investor Service rated the deal BB' and Ba3', respectively.
"The deal is a mix of project finance, CMBS and corporate debt," said Sam Fox, a director of Latin American structured ratings at Fitch Ratings. "It's sub-investment grade largely because of limiting risks of construction and sales."
Located in Panama, the issuer's main business is developing, building and operating a 66-story, mixed-used building called the Trump Ocean Club. The notes are backed by a first mortgage lien on the club, by cash in the escrow accounts and by an assignment of all receivables from the sale or rental of residential and commercial units.
Newland pledges to the trustee that issued the notes all existing and future receivables, amounting to a 125% collateralization of the principal amount of paper. The condos in Trump Ocean Club won't be available for occupancy until 2010, constituting a major risk for the deal, since that source won't be generating revenue for the first couple of years from issuance.
Another deal that fits the Bear mold is Cap Cana, a $250 million, seven-year deal issued in October 2006 at a yield of 9.625%, according to news reports. That transaction was designed to fund the construction and operation of a tourist and leisure resort community in the Dominican Republic. The multifaceted project is designed to house the largest inland marina in the Caribbean and five championship golf courses.
Fitch and Moody's initially rated the deal B' and B3', respectively. Some $140 million of the proceeds financed an escrow account, which is being tapped as the project achieves certain construction milestones in the first phase of its development. Despite the low rating, the existence of the escrow account reportedly attracted structured product investors.
Moody's upgraded the deal to B2' last October. "Full collateralization with receivables for the $250 million secured notes was achieved in nine months, although Cap Cana had 24 months to do so," the agency said. "Construction and deliveries of product are 20% ahead of the execution schedule."
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