Fitch Ratings has released its 2006 outlook for Latin American structured finance. Its forecast for the cross-border market: expect more of the same. Thinner volumes last year will linger into 2006, as many of the leading candidates for issuance are filled up on debt.
"Capacity ... under their existing programs is limited," according to the agency. "The improving credit profile of the region, as evidenced by numerous sovereign upgrades, has opened new, nonstructured financing alternatives."
In the case of Brazil, the origin of most cross-border liquidity, the government's recent announcement that it will repurchase debt is expected to strengthen the relatively easy access to unsecured funding that big-name corporates have been enjoying. The news gave a sharp boost to the local currency and Brazil's sovereign bonds.
Fitch also mentioned that the growth of domestic markets will continue to sap energy from cross-border issuance, as originators tap domestic, instead of foreign, investors in increasing numbers.
Three conditions could inject fresh vigor into the cross-border market, according to the agency. One is the arrival of a new generation of originators that are further down the ratings scale. The second is the issuance of more securitizations of existing assets, which have taken a back seat to future flow deals over the past few years. The third is the introduction of new risk-mitigating products by the private and multilateral sectors.
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