In March of 2007, HR Ratings in Mexico opened its doors. The moment seemed historically auspicious. The domestic debt market had grown into a formidable platform for issuers, with asset-backeds staging a placement record of around $6 billion in 2006. Rumblings from sub-prime told off a pesky but contained phenomenon up north.

All that changed later in the year when local confidence began to slide. Soon enough, the entire domestic market had succumbed to the global financial crisis. Meanwhile, instead of waiting for brighter conditions, HR angled for opportunities wherever they might lie.

At the same time, agency made more hires. It now has 20 analysts in its Mexico City office.

Betting on a return to a more robust market in ABS, the agency hired two key analysts from the securitization world this year. Most significantly it poached Rogelio Arguelles from Fitch Ratings, where he was a director of structured finance in the Monterrey office. Arguelles' experience in Mexican ABS stretches back to the very inception of the market - a trade receivables deal for giant retailer Elektra done in 1995. Since then he has had his fingers in virtually every ABS pot.

In addition, last May the agency hired Salvador Salazar from Promotora y Operadora de Infraestructura (Pinfra), formerly Grupo Tribasa. In the five years up to joining Pinfra in April 2008, Salazar focused on toll road transactions and other infrastructure at Fitch. He now runs a two person infrastructure team.

ASR emerging markets editor Felipe Ossa recently caught up with HR's CEO Alberto Ramos, to chat about the agency's relationship with India's Credit Analysis and Research (CARE), its efforts to compete against the big three agencies, and how ABS fits into HR's coverage.

ASR:

On your Web site there's a good deal of text devoted to CARE. What is the connection exactly between HR and CARE?

Ramos:

When we conceived of HR, we sought a strategic alliance. We looked at different parts of the world - there aren't that many independent rating agencies [outside the big three, already active in Mexico]. In Canada, there's DBRS; there are two in Japan; one in Malaysia and a few in Latin America. We decided on CARE. With them we've signed a technical assistance contract. We can use their models and methodology and when we hire someone they're trained with CARE. But at the end of the day, we're a 100% Mexican enterprise and not a subsidiary of CARE. The full responsibility of ratings lies with us.

ASR:

What kind of experience does CARE have in structured finance? Does their technical support make a difference in ABS?

Ramos:

They've been operating in India for that last 16 years, having rated over 5,000 deals with a total value of INR16.6 trillion ($343 billion). Many of those deals are asset-backed and they're particularly sophisticated in the area of infrastructure. They've rated a large range of ABS deals. You have to consider that India's debt market is significantly larger than Mexico's.

ASR:

How do you compete with the likes of Fitch, Moody's Investors Service and Standard & Poor's- all agencies that are entrenched in Mexico and have been with the domestic ABS market through its growing pains and then its speedy evolution over the last several years?

Ramos:

We think the market was looking for an alternative. We're not competing based on rating - we're doing it based on service. We feel we're providing a service that's more local and personalized. We're developing relationships with investors. Although it's the issuers that pay us, we think it's important that investors know us. We're constantly in contact with them. If we issue a rating, I'll go out and explain that rating to investors.

ASR:

What have you been doing in structured finance?

Ramos:

We've rated some simpler structures like those with a partial guarantee from Nafin (Nacional Financiera) and more complicated ones like a trade receivables deal from Cemex (see p. 24). We have more in the pipeline.

ASR:

Do you see a vital future for securitizations in Mexico, given the sharp slowdown in issuance earlier this year? In particular, it would seem that a number of investors might be leery of the sector following the unraveling of transactions in the U.S. and epic lapses in servicing by housing finance company Metrofinanciera - which went unnoticed for years - among other events.

Ramos:

What investors see in Metro is something particular to that company, which is different from what's happened in the U.S. Mexican investors are actually looking for more security and are aware that most securitizations here have performed well. [At the same time] they're analyzing structures more than they used to. I think there will be all kinds of ABS down the road. We'll even see more big companies like Cemex securitizing their trade receivables. At any rate, investors are welcoming some kind of structure in their deals. We'll see more issuance in general in the second half of the year. There's a lot of paper coming due later this year and early next year. Companies have been financing themselves at very short terms. Also, we expect to see more medium term paper later this year.

ASR:

While you've started to push into different areas of the market, you appear to have collected the most ratings, by far, in the area of municipalities. Why this penchant for sub-sovereigns?

Ramos:

Our original market niche was there. It was in states and municipalities in particular where we thought we could add value. Right now, we have a 25% market share in that segment and we'll stay active there. Banks offering loans to this segment need them to be rated to know how much to put aside in reserves.

ASR:

We've seen states and municipalities securitize federal co-participation revenue, car ownership fees, toll road revenue and other assets. But, as with much of the market, this sector has been quiet this year. Do you see a return of the sub-sovereign issuer to the ABS market?

Ramos:

This year looks complicated with elections in key states and in Congress. Election years are always complicated.

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