On Nov. 27, HSBC Argentina priced the country's first commodity-backed deal since the financial crisis blew up about a year ago. Though relatively trim, the US$8.8 million securitization, Fideiagro-Hexagon VIII, sets the stage for further agriculture trusts, especially in light of the reasonable pricing. "This could be the start of the trend," said a source on the deal. Other banks, such as Banco de Rio, are understood to be nurturing their own deals. First Trust of New York is the trustee on Hexagon VIII.

Amounting to US$6.1 million, the senior tranche of the deal priced at 7%, according to sources familiar with the transaction. The collateral is comprised of loans to roughly 150 producers bearing an average weighted yield of approximately 13%. Compare that with the 30% rates being charged for loans to most exporters and the lure of structured deals is inescapable.

Fitch Ratings gave the senior piece a short-term rating of A3' on the national scale. A number of pension funds - about eight - bought in. The unrated subordinated piece, sized at US$2.7 million, went primarily to large exporting firms that hold forward contracts with the producers involved in the trust. Among the exporting firms are Cargill, LouisDreyfus and Aceitera General Deheza (AGD).

While pricing went smoothly, much of the deal's good fortune lies with pension funds' unsated appetite for paper in a skimpy marketplace. "The funds don't really have options right now," said a source close to the transaction.

The bond is not without its risks either. For one, it oozes HSBC risk: the bank group includes the structuring agent, lender of the collateral, and even an insurance provider for the producers in the deal.

What's more, the government may not be through with economic tinkering. Further tightening of capital controls could inflict damage on dollar-earning exporters and pose problems for producers as well. Presently the potential is slim for more seriously disruptive measures, given that the economy appears to be already recovering and commodities are precisely the sector that can keep it on the right track. But one big question mark remains: will Argentina's presidential elections in April alter the regulatory landscape?

Hexagon VIII matures July 15, 2003. There are four scheduled amortizations on April 5, May 15, June 17 and July 15. The bulk of capital, 66%, is paid out in June. The amortization schedule roughly coincides with key events in the cycle of the crops being ultimately financed by the deal. Some 70% of the underlying loans are going to soy farmers. Corn producers get 20%, and sunflower-seed producers, 10%.

Though Hexagon VIII hit the ground running, another HSBC deal is still drifting. Hexagon VII, a troubled Ps35 million (US$10 million) deal backed by corporate loans, has yet to price and, presently, there is no definitive time frame (see ASR 10/18 p. 21).

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