At the 2004 Latin America Conference held by Fitch Ratings, Senior Director Gregory Kabance predicted that the number of cross-border securitized deals would be nearly the same or slightly lower than the 19 registered by the agency last year. Brazil alone may churn out 10 to 12 transactions. "It may be aggressive, but it's a fair range," he said. Central America and the Caribbean might yield another five to six deals, while one or two could come from elsewhere in the region.

The year has not gotten off to a glowing start, with only one cross-border transaction having closed so far. Nevertheless, at this point in 2003, only two deals had materialized. A crush of issuers came in the third quarter.

While for this year rising interest rates are expected to dampen the mood, they may in fact spur some originators to press on before further increases, Kabance said. In addition, spread levels on structured deals have been less sensitive to the tighter money environment. All the same, sentiment over Brazil can be unpredictable. "[Some] 85% of the deals are done in a single-B plus country and there's volatility there," he said.

Future flow transactions will remain the cross-border market's bread-and-butter, but existing assets may rear their head as well. The consensus is that housing asset transactions in Mexico have nearly all the ingredients to go cross-border, except for one: a conveniently priced swap. "It's the one main obstacle," said Eugenio Lopez, senior director of Fitch in Mexico. For the time being, the wait will continue, sources said.

On the domestic side, Fitch estimated 450 transactions have priced to date in Latin America, amounting to approximately US$20 billion. In a sure sign that volumes are trending upward in most markets, US$5 billion came out last year alone, with white-hot Mexico accounting for nearly half.

Interestingly, nearly a third of outstanding volume has come from Argentina, which was on a tear before the meltdown. Small, short-term ABS in the consumer and export sectors are the only deals getting done in the convalescing country, while peers Mexico and Brazil are pushing up their regional market shares by leaps and bounds. "They're taking their rightful place consistent with the size of their economies," said Sam Fox, senior director at Fitch.

In the realm of asset classes, the region has tapped into mortgages, construction bridge loans, future flow receivables, consumer loans and bonds with partial guarantees. To date, real estate receivables have backed up to 40% of all Latin American transactions in the domestic markets.

Infonavit shoots for Ps4bn

in 2004

The real estate spotlight is focused most pointedly on Mexico, which introduced RMBS late last year and has a relentlessly expanding pool of assets. The market's leading originator, Infonavit, should issue about Ps4 billion (US$352 million) in 2004, said Fitch's Lopez. So far, the state agency has placed Ps751 million (US$66 million).

Private originators in the housing sector, known as Sofols, will keep issuing deals as well. Lopez said that presently there are five RMBS in different stages of structuring. Their appetite for market funding will only grow, as the state agency gradually pares down its financing of the Sofols and the government promotes its goal to have 750,000 mortgages generated in 2006. The figure was 503,000 in 2003.

One issue of rising importance is recovery data, which was absent in the first two RMBS transactions. "Slowly, the Sofols are building a database, and of the roughly 2,000 cases that are in process, about 600 have closed," Lopez said. "Some [recoveries] have had profits and other have had losses, and new mortgages are being built on this model of recovery." As a lingering caveat, most eligible mortgages in Mexico are very young, he noted.

Nevertheless, Lopez expected recovery information to figure in upcoming Sofol deals, as is understood to be the case in an upcoming Hipotecaria Nacional transaction led by Citigroup.

Copyright 2004 Thomson Media Inc. All Rights Reserved.

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