Capitalizing on low domestic interest rates and peso strength, Mexican retail conglomerate Elektra has issued a securitization designed to wipe out dollar-denominated debt. The company will use proceeds from a Ps2.6 billion (US$235 million) deal backed by fees on electronic money transfers to call a US$275 million bond maturing in 2008. "It was becoming very costly for the company," said Rolando Villarreal, head of investor relations at Elektra. "When we buy it back, we'll have no dollar debt."

Maturing in 2012, the new peso deal priced at 250 basis points over the six month TIIE, which currently translates to about 8.7% a year. The foreign bond headed for retirement was costing the company an annual 16% in pesos, factoring in the expense of exchange rate hedging. The 2008 bond has a call option that kicks in next month. Warburg Dillon Read, Credit Suisse First Boston and ABN Amro jointly issued that deal in 2000.

Value Casa de Bolsa placed the peso deal, and boutique bank Axan was structurer. Fitch Ratings rated the deal AA+(mex)' on the national scale.

The originator of the fees is Elektra unit Intra Mexicana, which offers the money transfer service of "Dinero Express" throughout the country. In 2003, the company made Ps272 million (US$25 million) on fees over electronic cash. That figure has grown at an annual rate of 32.6% over the last seven years, according to a Fitch report.

Unlikely asset for cross-border

Elektra's deal signals the debut of this class in Mexico. In the cross-border world, originators have not tapped fees on money transfers, even though the cash itself is one the most commonly securitized assets among emerging markets. One reason is the transfer and convertibility risk. Brazilian banks, which dominate the money transfer sector, are able to garner adequate ratings on their transactions in part because the flows are in dollars and relatively easy to trap in an offshore trust. As locally generated assets, fees would not carry that natural buffer against transfer and convertibility risk. "You'd have to get some sort of Brazilian trust and then another trust offshore," said one New York-based banker.

Another player noted that the volume of fees at any one of the major Brazilian banks would not even come close to the actual e-cash flows. "It wouldn't make sense; there are other assets with greater volume," he said, adding that in the U.S. transactions backed by e-money often explicitly exclude the fees.

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