Latin America's faded cross-border market for MBS deals is showing signs of life. In mid-August, First Costa Rica Housing Corp. issued a 15-year, US$61.5 million bond. Analysts say it's the first true international MBS securitization out of the region since Argentina's Banco Hipotecario Nacional placed a US$115 million deal more than two years ago.

Snapped up by two U.S. insurers, the senior tranche of the MBS came in at US$49.6 million and priced 95 basis points over LIBOR. "I'd say we secured it pretty tight," said Devinda Subasinghe, vice-president of the structured finance group at Raymond James, which structured and placed the deal to market. Law firm Greenberg Traurig, LLP advised.

S&P's and Moody's rated the senior chunk triple-A, thanks to a mesh of enhancements. In addition to a wrap provided by XL Capital Assurance, the deal carries political risk insurance from Sovereign Risk Insurance. It was also overcollateralized, while the issuer enjoys access to a variety of reserve funds. Those guarantees helped the ratings pierce the sovereign foreign-currency ceiling of BB' and Ba1' by S&P and Moody's, respectively.

The quality of the mortgages originated by Banco Interfin and Banco de San Jose was also fair. About half the underlying mortgages are held by the banks' pre-existing clients. The mortgage providers gobbled up the US$12.5 million unrated, subordinated tranche. Interfin and San Jose are Costa Rica's second and third largest banks, respectively.

Not everything was smooth sailing for the deal; it had been in the works for a few months before Sept. 11 hit. "There were concerns because it was wrapped. People were asking What's going to happen to the insurer?'" said a source. Heightened risk aversion courtesy of Argentina was another obstacle.

What is more, Raymond James had initially retained Overseas Private Investment Corp. (OPIC) for the PRI. When the insurer disagreed on certain aspects of the deal, Raymond James spirited the bond away from OPIC and into the arms of Sovereign - a 50/50 joint venture between XL and ACE Bermuda Insurance, Ltd.

Pricing no doubt benefited from the fact that Costa Rican issuers are scarce, and U.S. investors have been truffling around the region for paper as remote from Argentina as possible. "People were able to make the distinction," said Raymond James' Subasinghe.

The question is whether First Costa Rica has cracked open the window for more cross-border MBS out of region. "I think it shows that if you choose the situation carefully you can have a successful deal," said Gary Kochubka, director of Latin America Structured Finance Group at S&P. It may be difficult to replicate a deal from a country that does not have Costa Rica's reliable legal structure and navigable securitization law, but sources say the issuer's success and the right enhancements might prompt others to take a chance over the next several months.

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