Finally, a cross-border Latin deal that is not Brazilian. Following a rash of future flows transactions from the region's largest country, El Salvador produced a US$125 million bond backed by diversified payment rights (DPR). Led by Citigroup Capital Markets, the transaction from Banco Cuscatlan was dropped into one of the arranger's conduits, sources said. The legal final maturity was seven years. The paper has been priced at a spread to Libor.

This is the second time the bank tapped the market with this asset class, but in this instance it brought Guatemalan and Costa Rican units and U.S. unit Corfinge on board, making it the first multi-jurisdictional deal in the DPR segment, according to one source. "Guatemala and Costa Rica represent a very small part of the deal, but they are expected to grow," said a source on the transaction.

XL Capital Assurance is guaranteeing the transaction, rated AAA' by Fitch Ratings and Standard & Poor's. S&P gave it an underlying rating of BBB.' Dewey Ballantine was legal counsel for the issuer, while Sidley Austin Brown & Wood advised Citigroup.

Collateral for the deal are existing and future electronic money remittances owed Cuscatlan from several banks within the U.S. Additional flows trapped by the vehicle will come from the Guatemalan and Costa Rican units and Corfinge. As the U.S. subsidiary serves primarily a retail clientele, most of its flows will be in the form of worker remittances, a source said.

The projected coverage ratio is about 20X.

Banco Cuscatlan is El Salvador's second largest bank, with a market share of 23%. It is part of the second largest financial group in the region.

The transaction is the second off the trust and brings the total to US$225 million, with roughly US$206 million outstanding.

The diversified payment rights in the deal cover worker remittances, certain tourism- related receipts and payments linked to international trade, foreign direct investment and interest income. "The provision of trade and foreign exchange correspondent services is necessary for Cuscatlan to remain a leading provider of financial services to its Salvadorian clients," S&P said in a report.

With a significant and growing percentage of Salvadorians residing abroad, remittance flows have swelled in the past several years. They now account for 12% of the gross domestic product. The fact that DPR collections are trapped offshore and do not ever enter El Salvador, Costa Rica or Guatemala sharply cuts the risk of government intervention. Still, the countries could meddle in the payment mechanics of the transaction, though strong disincentives exist for doing so.

While the deal is the first in the DPR sector to bring together several countries, another asset class had already done so in the region. Credomatic, also arranged by Citigroup, spanned five jurisdictions in Latin America. That deal is backed by credit-card receivables and was sunk into one of Citigroup's conduits (see ASR 1/26, p.23).

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