With a brand new securitization law in place, Uruguay is heading towards its first asset-backed transactions.

The national parliament recently approved law no. 17202, which regulates asset securitization. The first potential issuer is said to be the state-owned mortgage bank, Banco Hipotecario del Uruguay, which grants financing for most of the country's housing.

With over $160 million in assets, the bank is looking to structure an MBS type deal in the next few months. Other players are also working on future flow deals.

However, market pros feel that legal technicalities might delay the first offerings. The new law, which is mainly designed for mortgage securitizations, established the use of a fund as the special purpose vehicle rather than a trust.

"Basically, homogenous assets backed by mortgages will be transferred to a closed fund, which will then issue bonds or shares," said a source from Argentina who is currently working on Uruguayan transactions. "This type of SPV is said to be better suited for the Uruguayan market and its regulatory system but it is not what securitization experts are used to, which complicates the whole process."

Another limitation in the current law is that it has no provisions that would enable a strucuturer to assign various amounts of overcollateralization for different tranches. In other words, an issuer at this point would have to provide overcollateralization for the entire transaction, which would greatly increase the costs of coming to market.

"Lawyers and consultants are currently working on ways to improve the law," said a consultant. "But it is still work in progress'."

Following Brazilian devaluation and the subsequent loss of regional market share for its exports, the Uruguayan economy is in recession. As a result, the local capital markets are looking at the possibility of securitization with a high degree of expectation.

"Securitization could be a good way to revive our currently sluggish market," said a source. "I believe that if one issuer comes to market and scores' others will be eager to get in the game."

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