While some Latin American economies came to market with intriguing trends and deals that are sure to spin the future market, the overall consensus in the industry is that 2000 was a bit slower than 1999 - a relatively ordinary year in the world of securitization.
Highlights
Brazil, on a solid path to recovery from a recession, came to market with MSF Funding LLC, a transaction that many market players view as the most noteworthy deal of the year.
It was the first international existing-asset deal out of Brazil and it pierced the sovereign ceiling with ratings from Standard and Poor's Rating Services, Moody's Investor Services and Fitch. Deutsche Banc Alex. Brown and Credit Suisse First Boston launched the securitization of medical leases for MSF Holding, a medical equipment leasing and finance specialist operating in Latin America (ASRI 8/14/00 p.1).
"Traditionally, the Latin American market tends to be more future-flow based and existing-asset deals are more difficult to get done," said an analyst at Fitch.
Prior to MSF Funding, Argentina's Banco Hipotecario Nacional S.A.'s (BHN) also completed an existing asset transaction, BHN 4, its fourth MBS transaction. The deal was in line with Argentina's initiative that began in 1996 to use securitization as a permanent long-term way of financing a mortgage market (ASRI 3/27/00 p.10).
Additionally, Brazil finally closed Comphania Vale do Rio Doce (CVRD), an export-receivables deal for $300 million, which had been lingering in the market for several years (ASRI 10/23/00 p.8). "I think the CVRD trend was interesting but not a huge milestone for the year in terms of saying what was different," said a source close to the deal at MBIA. However, another MBIA source said, "CVRD couldn't have been done if Brazil hadn't taken the steps that it did to come back from its problems in 1998."
Mexico and Argentina
Certain Latin American countries also experienced rather historical changes throughout the course of the year. Perhaps the most obvious of these is Mexico, as a result of the political shift from the PRI administration to the PAN government for the first time in 70 years.
The transition was seemingly peaceful and smooth and major market players say the change is positive. "The composition and first moves of the new administration have been pretty favorable. So, all in all the change has been positively received," said Graham Stock, head of Latin American sovereign debt strategy for J.P. Morgan Chase & Co.
In fact, both S&P and Fitch have the country on rating watch positive and some industry members are expecting Mexico to reach investment-grade in the first quarter of this year. Moody's upgraded Mexico's rating to Baa3 with a stable outlook in 2000, which is investment-grade.
However, unlike Mexico, 2000 marked what could be the start of a downfall for Argentina. According to Stock, the failure to see stronger growth and subsequent pressures on the fiscal accounts and financing needs put Argentina at the top of the market's concerns. "The 2000 outcome was even more disappointing than expected," Stock said. "We're looking at GDP growth for the year of probably about .5% and that is below even the most pessimistic forecasts at the beginning of the year."
To 2001
Although many sources believe that many of the events that will occur in 2001 are dependent upon the U.S. market, industry players are predicting that local markets in Latin America will see more action this year. In particular, housing deals in the local markets are expected to be in the works for 2001.
In light of the recent problems facing Argentina, most industry players are not expecting the country to come to market in the first half of 2001. Stock noted that the financial aid package Argentina received from the International Monetary Fund (IMF) the World Bank, and the Interdevelopment Bank (IDB) will help Argentina stay out of the market for several months.
"One of the fears that we have for Argentina is even though this package will have helped meet 2001 financing needs, attention is going to turn back to their needs in future years. Help from the international community is welcome, but it doesn't solve the problem long term," Stock said.
On the other hand, according to Patrick Kearns, senior director at Fitch, "I wouldn't expect anything new to come out (of Argentina), but there are deals that have been in the pipeline that look like they are ready to go if spreads look reasonable. It just depends upon how urgently these companies need financing."
Peru, Mexico and Brazil are expected to come to market in 2001, sources said, but market observers are not predicting any exciting news for 2001, just yet. "I see it as a continuation of trends," said Jose Ramn Tora of S&P. Tora noted that in the year ahead, future-flow transactions will continue to be the predominant type of transaction in Latin America. However, existing asset deals are also expected to become more prevalent in the market. According to sources, Fitch is currently working on existing-asset deals.
Market participants also stress that ABS technologies will continue to develop globally: "The one trend that we see is technology that was developed in Latin America is now spreading to other regions around the world," said a source at MBIA. "For example, we are involved in structured deals in South Africa and in the Middle East and the technology all came from Latin America - future-flow, credit-card and export securitizations," said the MBIA source. "Innovation in Latin America is spreading abroad." However, the source warned that the reference to Latin America does not pertain to the entire region, since there is a vast discrepancy among the countries.
Looking Back
"It was a slower market this year, but there was a positive development overall," Tora said. According to S&P there were a total of 10 cross-border transactions from Latin America this year, of which nine were insured. Comparatively there were between 20 and 25 deals in 1999. The financial volume in 2000 only reached $2.6 billion, also significantly lower than 1999's $6 billion. However, three transactions in 1999 accounted for 64% of the total volume.
Sources noted that the slowdown in the securitization market was partially a result of the economic conditions and high oil prices in some of the countries. Furthermore, Mexico, Argentina and Brazil were the only three market players in 2000.
Additionally, Mexican banks endured a period of consolidation and realignment and therefore only came to market with one future-flow transaction compared to three the previous year. In all, Mexico only accounted for 45% of the transactions in 2000 compared to 61% in 2000.
The structure of deals also seems to be changing with the times. In 1999 most of the insured deals were full financial guarantees provided by companies like MBIA or AMBAC. In 2000 Overseas Private Investment Corp. (OPIC) and the Multilateral Investment Guarantee Agency (MIGA) began providing political risk insurance and partial guarantee policies. "The B loan is a very established type of structure, and that has shifted into political risk insurance," said Tora. OPIC and MIGA started the transfer and convertibility risk at the end of 1999 and it was welcomed into the market in 2000, which Tora views as a highlight.
Over the course of 2001 securitization is expected to continue growing as banks discover new structural avenues. "We don't see any huge trends over the next year. I think it will be interesting to see how the U.S. plays out and the impact it has on the different economies." But Kearns added, "There's always something new that comes up." -
