Mexico's first cross-border RMBS is on the way. Nonbank housing finance provider Metrofinanciera (Metro) is the originator on the transaction, which is expected to total around 295 million inflation indexed units (UDIs) ($99.7 million), with a legal final of 27 years and a weighted average life to maturity of 9.63 years, according to a source close to the deal. Fitch Ratings, Moody's Investors Service and Standard & Poor's rated the transaction BBB+' Baa1' and BBB+', respectively. Deutsche Bank and IXE are the leads.
Foreign investors have already gotten a taste of a sister asset class, bridge loans for construction, in prior deals executed by Metrofinanciera and its peer Su Casita. Some, namely hedge funds, have also ventured into the local market to snatch pieces of local currency RMBS. But this is the first time foreign investors will be able to purchase a Mexican RMBS on their own turf, as the deal is both 144A- and Reg S-registered. The arrangers have already completed roadshows in the U.S. and Europe and closing is tentatively timed for this week, according to sources close to the deal. Given the investment-grade rating and the fact that Metrofinanciera has already broken the ice with a cross-border deal, the yield is expected to be the kind that ABS investors, and not hedge funds, go for.
Enhancement for the transaction, which is backed by sub-prime mortgage loans, consists primarily of overcollateralization and mortgage insurance provided by Mexican state agency Sociedad Hipotecaria Federal. The insurance is expected to reach 25% of the deal's volume. The OC comes via the subordination of residual certificates held by Metro. These notes will make up 2.5% of the principle at the time of issuance and build up to eventually reach 9.5%, where the coverage will stabilize.
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