FIf 2003 had an overarching theme in Latin America's cross-border market, it was the return of Brazil. Having shed anxieties over the election of leftist president Luiz Inacio Lula da Silva, Brazilian issuers turned around the dismal mood of late 2002 and tapped the market for a total US$3.8 billion (see table, pg.16). The figure rises to US$5.3 billion if transactions carrying political risk insurance (PRI) are taken into account, according to rating agencies. While issuance was strong overall, it was not spread evenly throughout the year. A jump in volume during the third quarter totaled US$2.2 billion.

Renewed confidence in Brazilian product, paired with a lack of monoline supply, resulted in a disproportionate number of unwrapped deals. Some 80% of volume had no surety attached. Future flow deals dominated the scene last year, as existing assets denominated in local currency fell out of favor in the aftermath of the Argentine default and traumatic devaluation. In addition, the banks and exporters that lead the Brazilian market are strong originators of future flow assets. That is not to say that existing assets have been banned from the cross-border forever, as evidenced by the legion of New York bankers talking to mortgage originators in Mexico.

Among the highlights of 2003 was Visanet, a transaction that went on to win ASR's Achievements in Securitization Award. Led by Merrill Lynch, the US$500 million securitization of credit vouchers marked the company's debut issue. It was also a novelty for investors, who had never been offered product by this kind of company. Traditionally, credit card deals in emerging markets came from issuers that vie for the acquisition of vouchers from a particular credit card company. As a monopoly, Visanet offered something new.

The year also saw Argentina's YPF slip through a US$163 million deal backed by oil receivables. This marked the second deal off a trust given the generic name Oil International Ltd. as a way to throw off those who might follow the Argentine scent. Lead bank Morgan Stanley as well as the rating agencies and other players involved kept their lips sealed at the behest of the company, sources said. Still anathema to EM cross-border investors, Argentine risk was not something to be trumpeted. With the restructuring of the sovereign's debt unresolved, foreign sentiment towards issuers from that country remained hostile throughout the year. Closed in early February, the YPF deal marked the first and only Argentine securitization on the cross-border front.

Looking ahead, there is not an absolute consensus on volume in 2004, though most players project a slight decline. While Moody's Investors Service forecasts a continuity of volume, Standard & Poor's predicts a drop-off. The latter agency argues that the ability to borrow on an unsecured basis for the long-term will divert some traditionally structured issuers into the plain vanilla market.

One New York-based banker cited another reason for a potential downtick. "A number of programs from Brazilian issuers are nearing their capacity," he noted. On the other hand, issues from the likes of oil giants Petroleos Mexicanos and Petroleos de Venezuela (PDVSA) could easily send volume over the top. Political turmoil had kept the latter at arm's length from the market, but the country's fortunes have ricocheted in just about every direction over the last couple of years. As every emerging-market player knows, "Vene" is the perennial wild card.

The small countries in Central America could yield a few deals as well, particularly in the banking asset class of diversified payment rights. Guatemala and Costa Rica are considered strong candidates. While the region never promised a gush of supply, some players were disappointed by the paltry showing of two transactions in 2003.

Heady days in Mexico

To say that Mexico stole the spotlight in 2003 would be an understatement. As issuers in the newly investment-grade sovereign ignored the cross-border market, they flocked into the domestic arena. ASR tracked a total of 31 deals in the burgeoning market for a total volume of Ps30 billion (US$2.8 billion) (see table, pg.18). Originators of construction bridge loans, sub-sovereign entities, toll roads and others all found historically low interest rates irresistible. In addition, investors' aversion to structured transactions melted away throughout the year, compressing the spreads between securitizations and plain vanilla deals with the same ratings.

The year saw the arrival of new players, especially among guarantors. Monoline MBIA debuted in the peso market in May, wrapping a Ps1.9 billion (US$177 million) toll-road transaction for Tribasa. Belgium's Dexia Credit provided its first guaranty in the Mexican market as well by providing a 90% surety for a small transaction by the municipality of Tlalnepantla. Dutch development bank FMO got into the action as well. It enhanced two deals in the housing sector with a liquidity facility. New entrants cited large volumes - by the standards of Latin American domestic markets - and the prospects for growth as major draws.

In the sub-sovereign sector, the Federal District, as the heart of Mexico City is known, issued a peculiar quasi-CLO structure to get around federal restrictions on directly tapping the market. Led by Citigroup unit Acciones y Valores, the Ps2.5 billion (US$229 million) deal was a unique chance for bond investors to get their hands on DF risk. Under the structure, Citigroup channels a loan to the originator via the central government equal to each issue off the program. Payments come from federal co-participations revenues, the asset of choice for sub-national issuers.

Elsewhere in the sub-sovereign market, payroll taxes made more inroads as an alternative asset to federal revenues. The states Nuevo Leon and Veracruz backed deals with payroll taxes for a total of Ps2.2 billion (US$202 million).

The Mexican market that generated the most hoopla last year was the housing sector. Excited talk of the debut of RMBS turned out to be somewhat premature, as only one transaction came out and its size - US$55 million-equivalent - was not exactly breathtaking. On the other hand, this inaugural deal led by Credit Suisse First Boston proved that it could be done. Originators for that deal were Su Casita and GMAC Hipotecaria. More should hit the market in 2004.

The encouraging mood in Mexico will probably hold in the coming year. The market's "growth during the past year has been possible because of the favorable environment created by the local financial and economic indicators and key regulatory institutional changes," said Juan Pablo de Mollein, associate director of S&P Latin American structured ratings. Those same factors will bolster growth going forward.

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