For some time, bankers, analysts and others with a stake in Mexico's teething RMBS market have been trumpeting the sector's promise. But, with a cross-border deal yet to come out, it has been difficult to gauge whether foreign investors are genuinely receptive. Judging from the results of a domestic deal priced last Tuesday, it's clear at least a few are.
In volume terms, GMAC sold about a fourth of a domestic RMBS transaction to two offshore investors, according to a source at the company, marking a first for the primary market. Five investors - including hedge funds - bid on the deal, said another source close to the transaction. The fact that the product was mortgage-related proved to be a stronger selling point than the recent drop in the dollar, which has lured more risk-hungry investors into domestic currency-linked paper in other corners of the emerging-market world. "These were investors who had already identified the Mexican mortgage market as something they wanted to get into," the source said.
Sized at 306 million inflation-indexed units (UDIs) ($94 million), the deal priced at a real 6.43% yield. The legal final maturity is 30 years and average life is 8.5 years. The book totaled 12 investors, according to the company source. The transaction was led by Credit Suisse First Boston, which cut its teeth in the peso market handling deals jointly originated by GMAC and local player Su Casita. Moody's de Mexico and Standard & Poor's rated the deal triple-A on the national scale.
Meanwhile, Mexican highway operator Tribasa is on the horizon with a Ps1.85 billion ($162 million) shelf. Neither a date nor size has been determined for the debut issue off the program, said a source close to the deal. Local shop Corporativo en Finanzas structured the transaction, while ING and local brokerage Value will jointly lead distribution.
The final legal maturity will likely be 17 years and Fitch Ratings has given the deal a preliminary rating of AA+(mex)'. A presale report from the agency is forthcoming.
The structure is backed by toll receivables generated on a stretch of highway that connects the Federal District to the State of Mexico, between the towns of Penon and Texcoco. The road handles heavy commercial traffic en route to and from a connecting highway that runs to the bustling port city of Veracruz on the Gulf coast. Traffic rose 5.27% annually from 1995 to 2003. Penon-Texcoco raked in Ps179.7 million in tolls during 2003, and Ps147.6 million during the year through September.
The State of Mexico has passed on its concession to operate the road to Tribasa. Initially granted from the federal government, the concession expires in 2023.
Over in the media sector, high-profile name Television Azteca has an ABS backed by trade receivables in the wings. Details remain sketchy on the deal, which will be for up to Ps3 billion, according to an incomplete preliminary prospectus. Inversora Bursatil is distributing the deal and Axan is the structurer.
Azteca announced last week that it would repurchase $300 million in bonds set to mature in February 2007. The upcoming ABS was mentioned as one of the options to fund the buyback. Television Azteca is one of the world's leading Spanish-language media companies.
Elsewhere in the peso market, state credit agency Fondo de Fomento y Garantia para el Consumo de los Trabajadores (Fonacot) is due to make its third foray into the securitization arena. With a busy shopping season around the corner, Fonacot is turning to the capital markets for fresh funds to originate consumer credit to workers, which is its main business line. "The point of [the transaction] is to have liquidity for December," said Luis Enrique de la Pena, an analyst at Fitch. "That's a high-consumption month for them." Scotiabank Inverlat is leading the deal, which will be sized at up to Ps500 million and mature in six months. Ratings from Fitch and S&P are F1+(mex)' and mxA-1+', respectively.
This short-dated deal from Fonacot follows a one-year securitization priced on Sept. 30, 2003, and a 20-month ABS brought to market March 29, 2004. A static pool backed the first deal, while the second one had revolving collateral. The upcoming transaction is revolving as well. Initially, the collateral will be comprised of credits that Fonacot repurchased from the second, outstanding transaction and then sold back to the trust at a discount for the new deal. The reason for the swap was a better maturity match between the receivables and the transaction.
The upcoming deal is a zero-coupon bond. The initial pool has a credit recovery rate of 99%. Under the structure, no more than 2% of the credits can be originated at a single point of sale. Geographic diversity is a prerequisite as well, with no single state accounting for more than 15%, save for the populous Federal District, capped at 25%.
Fonacot was created in 1974. From 2001 to 2003, origination volume soared 34% annually. Growth is expected to bump up to 45% this year. In order to procure a Fonacot loan, a worker must make minimum wage, be in a job for at least a year and be at least 18 years old.
Meanwhile, the Federal District - the jurisdiction that governs the megalopolis of Mexico City - looks to return this holiday season as well. Last week, Citigroup Global Markets unit Acciones y Valores was roadshowing a Ps2 billion transaction from the sprawling city. Apart from a Ps500 million downsize, most details of the looming deal replicate an ABS that the District issued on Dec. 5, 2003, according to a source close to both transactions. The earlier bond, which was the issuer's ABS debut, had a six-year maturity and was rated triple-A on the national scale by S&P and Fitch. White & Case was legal counsel and JP Morgan Chase was trustee.
The deal securitized a Citibank loan to the city. Payments are backed by federal participations revenues, which flow from the federal government to states and municipalities. Most Mexican sub-sovereign issue ABS without a loan insinuated into the structure, but the Federal District faces special restrictions to direct borrowing in the capital markets. The CLO-esque structure is a way to circumvent those rules.
On the issuance front, government mortgage juggernaut Infonavit priced an RMBS worth 346.7 million UDIs ($107 million) in mid-November, its second so far. With a legal final maturity of 17.5 years and an average life of five years, the transaction yielded a real 5.65%. BBVA Bancomer structured the deal and was joint lead along with Inversora Bursatil. Both S&P and Fitch rated the deal triple-A on the national scale.
The deal was a tweaked from the agency's debut RMBS in March. The most salient differences were the denomination of the paper and a change in how the borrowers in the underlying pool have payments deducted from their paychecks. Unlike the follow-up deal, the first transaction was priced at a nominal rate - 9.15% - which is untouched by inflation.
In addition, payments going into the trust that issued the first deal were structured as a fixed percentage of a person's salary. So, as a worker's wage rises on the back of raises or adjustments to inflation, his or her mortgage payment correspondingly shifts up. That effect has accelerated amortization more than anticipated and prompted a rethink for the next deal.
The result is that payments into the second transaction adjust in line with the UDI, which neatly matches the denomination of the paper and heads off the potential for payment overflow and, hence, for sped-up amortization.
The second deal was the first off a Ps4 billion shelf. The rest should come out by mid-2005, according to a source on the deal. Mijares, Angoitia, Cortes & Fuentes was counsel on the placement.
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