Gracing the Chilean market, LanChile, a major Latin American airline, is sprucing up this year's playing field with a $55 million future flow ticket receivables transaction, the second deal of its kind. Excluding future flow toll road deals in Chile, future flow transactions are generally uncommon.

The cross-border, privately placed deal is a follow-up issuance from its original program completed in 1999, which marked the first-ever future flow ticket receivables securitization for the company as well as for the country. Unlike the last deal, which featured a wrap from Centre Solutions and received a double-A rating, this deal does not feature a wrap and has achieved a preliminary triple-B-minus rating from Fitch Ratings. Fitch has also provided the same corporate rating for LanChile, with a negative outlook.

"There is a private placement market out there, which clearly wants non-guaranteed deals - they just want to take the straight credit risk of the entities," said an analyst with Fitch. "The majority of the deals have been done with wraps, but there's still a big market for privately placed deals with investment grade ratings."

This deal, led by Merrill Lynch, is a securitization of future ticket receivables generated from credit or charge card sales in the United States. The cash flows from LanChile ticket purchases will be captured in an offshore trust. Additionally, the majority of the receivables will be for flights between Chile and New York City, Miami and Los Angeles.

Future flow transactions out of Chile have been limited. As an investment grade country, Chile companies have the ability to issue straight paper without doing future flow structures, sources said. Although, the Fitch analyst noted that investors seem to find comfort in airline ticket receivable deals since the collateral enhances the deal and allows investors to become comfortable with an airline when the airline industry is not as attractive to investors.

"These structures enable airlines to access investment grade investors," the analyst said. "It's really proving to be a resilient asset class and a lot of investors do like those future flow airline deals."

Aside from the fact that this is only the second deal of its kind in Chile, analysts close to the deal have said that investment grade airline transactions are a bit of a rarity. "Most airline deals are not investment grade," the analyst at Fitch said. "Typically you have too much leverage."

However, LanChile, along with Southwest airlines, were the only two airlines globally that made money in the fourth quarter of last year, sources said. "The airline has been tested, it's relatively lower leverage than most airline companies," the analyst noted. "September 11 was a good test and they were the only Latin American airline that I saw that did not have a substantial dip in the fourth quarter - they actually had growth. The coverage levels are on the lower end, but the airline company itself is pretty resilient."

The deal is expected to attract insurance company investors, pension fund investors, and U.S. institutional investors that have historically bought future flow deals unwrapped.

"Although the market has seemingly gravitated toward wrapped deals, there is still an investor base out there that really values the underlying structure, doesn't need to have a triple-A wrap and would rather invest in the underlying entity." the analyst noted.

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