While Brazil's stellar recovery in global debt markets and Mexico's domestic-darling status has re-centered attention on the big boys of the region, a pair of credits from small Caribbean countries are in a bit of trouble. Last week, Moody's Investors Service downgraded the US$4.5 million B-tranche of a total US$44.5 million deal issued by the Belize Mortgage Company in April 2002. The piece is now at Ba3' from Ba2' originally. The move comes after the agency cut the sovereign to Ba3', citing an escalation of debt in the wake of an expansionary mode. Now that the government is pursuing restrictive policies, the rating should stabilize, the agency said. The government guarantees the junior tranche.

Fitch Ratings has so far kept that piece of the deal at BB'. Enjoying a surety from Steadfast Insurance Company, the A tranche is rated A3' and A' by Moody's and Fitch, respectively. Steadfast is a fully owned subsidiary of Zurich America Insurance Company.

Notwithstanding the Moody's downgrade, the agency noted in a report earlier in the year that the quality of the underlying mortgage pool had improved.

Artemis Global Finance was the arranger and placement agent on the deal. The Bank of New York was the trustee. Backing the bond are various asset types, including mortgages and small-business loans originated by the Development Finance Corporation (DFC) of Belize.

Across the Caribbean, the Dominican Republic is home to a credit facing similar challenges. Though it has yet to issue a structured deal, Banco Popular is in the pipeline with a credit-card receivables transaction for roughly US$150 million via Citibank, according to sources. The deal is bound to be affected by Standard & Poor's decision to put the bank's BB-' foreign currency rating on CreditWatch with negative implications in light of alleged malfeasance, and perhaps much worse, at peer Banco Intercontinental. While there is no evidence of wrongdoing by any other Dominican entities, the trouble at Intercontinental could seep into related credits via sovereign contagion. "[There is] risk that the sovereign ratings will be lowered if the emerging problems at BanInter further weaken political institutions, the external reserve position, and economic policy flexibility," S&P said in a release.

A source familiar with the Popular deal says a derailment is unlikely. "Investors may take a second look during due diligence (but) the deal will still get done," he said. Banco Popular is the country's largest bank, while BanInter ranks third.

Meanwhile, cross-border investors have been warming up to Brazilian issuers, as the sovereign makes huge strides in winning back investor confidence. "The window is sweet right now," said Juan Pablo de Mollein, associate director of Latin America structured finance at S&P. "Bankers and issuers saw what happened with Petrobras and are pushing to get their deals out."

In mid-May the oil producer priced a two-tranche US$750 million deal. In a sign that investors were more than ready for Brazilian risk, US$550 million came unwrapped (see ASR 5/19, p.19).

In the pipeline are deals backed by diversified payment rights from Banco Itau, Banco Bradesco and Unibanco. In the consumer sector, Redecard, linked to Mastercard, and Visanet are expected to pounce within the next few months. And iron ore producer CVRD, led by JP Morgan, is heard to be fast approaching the finish line in the private placement market with a receivables deal worth at least US$200 million.


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