Investors welcomed Chile's first future flows securitization March 9 and a second one is slotted for June, but not all is won for the rookie asset class. While groundbreaking for locals, both transactions fall short of the kind of structure that holds a deal at arm's length from the originator. "Neither is pure future flows," said Octavio Bofill, a partner at Grasty Quintana Majlis & Cia. "There's a recourse to the issuer in both transactions...and they are not off-balance sheet."

While there no apparent regulatory obstacles to prevent the full isolation of pledged assets from an issuer, industry players question the desirability of doing so in the peso market. One impetus for proper future flows deals in the cross-border, where they are commonplace, is mitigating sovereign risk. For Chilean investors, that kind of risk is trivial, since the currency volatility is a non-issue and the sovereign is deeply entrenched in investment-grade territory. In addition, investors are notoriously unadventurous in Chile, in large part due to rules that keep pension funds moving together. "I don't see a lot of space for future flows in Chile...but there will be some more," said Alejandro Sierra, director of Moody's Investors Service affiliate Humphreys.

Boffill said that his firm is already working on a domestic transaction with the aim of full isolation. Details should emerge in a few months.

Meanwhile, the market is digesting a securitization of future tuition receipts issued by Universidad Diego Portales on March 9 (see ASR 5/12, p.18). Sized at one million inflation-indexed units (UF) (US$24.4 million), the deal's final legal maturity is eight years, while duration is 4.2 years. Structured by ABN Amro Securitizadora and Deloitte & Touche, and placed via Banco Bilbao Vizcaya Argentaria (BBVA), the deal priced at 5.45%. That yield is tight to comparable AA' transactions launched last September even though Diego Portales holds a slightly lower AA-' rating on the national scale. The bid-to-offer was 1.3 times, while the spread came to 245 basis points over the eight-year PRC treasuries, a tad inside price talk.

A partial guarantee from the International Finance Corp. for up to 30% proved a draw for investors, said sources on the deal. While the market life of the deal is only a week, participants have already fielded inquiries by other educational establishments impressed with the results, sources said.

The IFC, for its part, is open to providing more guarantees to private universities in this nascent asset class. The entity steers clear of the federal government sector in its client countries, which may or may not ultimately rule out an important group of Chilean universities that are privately run yet receive federal subsidies. "We'd have to see if (these institutions) meet the criteria of a private university," said Lee Meddin, chief structured finance officer at the IFC.

One university that falls into this borderline category is the Universidad de Concepcion, which is timed to place the market's second securitization of tuition receipts in June. Sized at two million UF (US$48.8 million), the transaction has a 10-year legal final maturity. The deal marks the first incursion into the Chilean arena of structured finance by Securitizadora Interamericana, a part of American International Group (AIG). Larrain Vial will be the issuer, while Grasty Quintana Majlis & Cia is counsel for the lead.

Federal subsidies complement the tuition flows, while pledged property roughly equal to the total issue provides additional backing.

Standard & Poor's affiliate Feller Rate and Fitch Ratings gave the deal an A-' on the national scale, making it a hard sell to fastidious pension funds. Speculation is that the paper may get a warmer reception from banks, particularly those owed the shorter-term debt that bond proceeds will refinance.

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