The Latin American cross-border market was energized by a few watershed events in 2007, especially in the field of existing assets. But volumes still failed to reach the heights of previous years, and the same troubles afflicting other arenas of structured finance crushed activity in the second half of 07.
As in other areas of emerging markets, issuance dipped in part over concern that AAA' wraps were in trouble.
This was particularly significant in the cases of MBIA, Ambac and XL - the three monolines with a weighty presence in Latin America's cross-border arena. Whether these monolines will retain their status in this market is a big issue for 2008.
But before the wrap was a burning issue and global liquidity sank, three memorable RMBS deals made their mark last year. Two Mexican originators, Metrofinanciera and Su Casita, placed RMBS abroad (see table, p. 31). Metro's deal was entirely in inflation-indexed units (UDIs), while Su Casita's had both a dollar and local-currency component. This underscored the foreign appetite for peso risk.
What is more, Metro's RMBS was structured as an American Depositary Note backed by trustee certificates in Mexico, with the ratio of the U.S. and Mexican securities at one-to-one. This enabled cross-border trading of the notes, an innovation for the Latin American structured finance world, and one that could become common as Mexican originators look to overseas markets to nurture their booming asset growth.
Joining Mexico in making news was Panama. La Hipotecaria, building on a history of local RMBS issuance on the isthmus, went cross-border for the first time in March.
When these RMBS came out, they were held up as examples of Latin America's insulation against the subprime mess in the U.S. But as the credit crisis in the U.S. spiraled out and risk aversion crept higher and higher, it was clear that cross-border placements of any kind would face grim conditions.
Though it came close, activity didn't vanish altogether in the second half of the year. Banco de Credito del Peru managed to squeeze through a $500 million deal in early August, wrapped by Ambac.
The deal priced only several points wider than comparable paper earlier in the year, but the blowout in spreads for leading monoline insurers wouldn't be long in coming.
Finally, Bradesco issued $400 million backed by DPRs in mid-December. Unsurprisingly, pricing was undisclosed.
A lead on one of the tranches, Dresdner Kleinwort, lost a few people in the Latin American debt capital markets team later that month, apparently the only major bank in the area to experience high-profile layoffs in the Latin America space last year.
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