It looks like the Argentine government isn't out to make friends in structured finance. The administration of Cristina Kirchner last August abolished certain tax exemptions for financial trusts. This will cut the available excess spread - after losses - in some local ABS deals by 35%, according to a report from Moody's Latin America.
The agency added that the subordinated tranches of deals will bear the brunt of the drop in excess spread. As a result, the agency put on review for possible downgrade the 'Caa1' global scale, local currency and 'Ba1.ar' national scale ratings on 11 sub pieces. It also pointed out that deals that are undercollateralized at issuance and rely on excess spread to pay principal could be in jeopardy. The agency does not rate any deals that were so-called "under water" at closing.
"The review will be on a case-by-case basis and will focus on the amount of excess spread available, the outstanding balance of the debt securities and expected future cash flows," among other factors.
All the transactions affected by the ratings action are backed by loans originated by Banco Banex.
The change in the tax regime isn't potentially damaging for all Argentine deals, as some do not depend on excess spread, and others were already subject to the income tax. There were also deals that were saved from being placed on review for downgrade because they were already at the low rating level of 'Ca'.
Moody's pointed out that other Latin American countries, like Brazil and Mexico, exempt financial trusts from paying income tax as a way to stimulate the market.
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