MIAMI, Fla. - While music aficionados, celebrity-watchers and just plain partiers on Miami Beach chatted blithely in the sun about the MTV Latin America Video Music Awards being held here, other devotees of things south of the border came together downtown for a more sobering reunion. "This is probably the nastiest, worst time in the market that any of us remember," said LatinFinance editor John Barham during his opening address to Euromoney's Securitization in Latin America Summit.
With Argentina shut down and only a few deals squeezing through Brazil's border, other participants echoed that sentiment. "Everyone's appetite right now is minimal for Brazil and Argentina," said Bear Stearns Senior Managing Director Jonathan Lieberman, referring not only to investors but to the insurers and multilateral institutions that add enhancements as well. "We're out of capacity in Brazil and we're not looking at anything in Argentina," said Diana Adams, managing director of Ambac Assurance Corporation.
There has been somewhere in the area of $40 billion to date in emerging market cross-border securitizations, since the cross-border structured finance market came to life 15 years ago. Sources said there are enough assets in this sector to have between $70 billion and $80 billion per year. The severe volatility surrounding the Brazilian elections has soured investors on much of the region over the past several months.
For sovereign borrowers, "spreads are even higher than in the tequila [crisis]," noted Michael Lucente, director of the structured finance team at Merrill Lynch. "There is no access for the biggest issuers right now."
But the gloom hasn't contaminated the entire arena of structured finance, even in Argentina. A number of participants focused on those structures that have best weathered the Argentine debacle, the Brazilian crisis, and their combined regional impact.
As the looming performance of Colombia's perennially leather-clad pop star Shakira held the beach folk in thrall, it was the ongoing performance of future flow deals that captured the more serious attention of conference participants. "They've been performing well in Argentina and that's the greatest test," said Violet Osterberg, managing director at Pacific Life Insurance Company. Osterberg handles a $1.9 billion portfolio of private and 144A paper, with about $400 million in Latin American debt.
Ambac's Adams sees advantages to future flows as well, as long as they not only limit interference from the originator, sovereign or other party, but also diminish the incentives to do so. "The pain should be more than the gain for any sovereigns or originators to intervene," she said. Inside the asset class, credit card deals tend to be resilient when backed by primary banks that are unlikely to be allowed to fail in a country. They are countercyclical as well, since tourism will pick up in a country in times of a depreciating currency. "We are willing to finance credit card receivable deals," said Pacific Life's Osterberg. Terrorism, though, is a factor that can't be entirely discounted. "It remains to be seen how they'll hold up to the some of the stresses today," Adams said.
On the export-secured front, one of the success stories has been the YPF deals, repeatedly cited at the conference as examples of transactions that have worked (see ASR 9/16, p. 23). In addition to pulling in dollar flows, the reserve and collection accounts for those deals are outside the country - a key to their survival. Participants agreed that the preferable domicile for those accounts is the U.S. What is more, parent company Repsol has actually added further backing to at least one YPF deal. "It's stronger than ever," Adams said.
Jaime Rivera, chief operating officer at Panama-based trade finance bank Banco Latinoamericano de Exportaciones (Bladex), offered the most distilled regional lesson gleaned from the Argentine debacle: "You want to get [the assets] as far from the sovereign as possible."
Another important element of receivable deals is a broad base. According to Osterberg, one Mexican steel credit her company holds went through a messy restructuring largely because its deal was backed by receivables from one off-taker. A peer credit out of Brazil has performed well, bolstered by that fact that its backing base is diversified.
While the rare deal that has survived Argentina's black hole rightly won praise, participants did not mince words in discussing the country's problems and the difficulties that lay ahead. "There might be deals structured outside the reach of the sovereign [in Argentina]," said Bladex's Rivera. But, he added, they will likely go to local investors. "I don't think any structure would be palatable to [foreign] investors at the moment," Rivera said.
A buzz continues about potential export-backed deals out of Argentina, but nothing concrete formed during the first day of the summit. So far this year, the only deals that have seen the light of day are tiny local transactions, mostly designed for banks to get liabilities off their balance sheet, such as HSBC s Ps35 million CLO (see ASR 10/14 p. 16). "You may see the odd deal every now and then," said Merrill's Lucente. "Companies need credit and there are pockets of liquidity, so they find each other." Beyond that, however, no one saw activity coming out of Argentina in the foreseeable future.
For its part, Brazil may be down, but it's not out, as evidenced by the MT 100s that have crossed the border over the past few months. They're not quite as sexy as Shakira, but for now they'll have to do.
