Mexican white-goods producer, Controladora Mabe SA de CV, which is 48% owned by General Electric Co., recently sent investors a red herring to market its $150 million five-year average, seven-year final, future-flow securitization in the traditional private placement market.
It is fitting that one of the last corporate issues of 1999, a year in which only the most carefully crafted of emerging markets transactions have passed muster, is employing a future flow structure and is targeting the private market's investor base, sources said.
"You haven't seen anybody coming out with new issues in the public market," said one banker specializing in Latin American private placements. "Maybe a new issue could be supported [in the public market] but it would only be possible with a really strong credit and it would probably be a high-grade."
Nevertheless, even in the private market, deals must be structured just so, she added, incorporating either a securitization structure, a multilateral credit enhancement, or a strong foreign sponsor.
Mabe's deal, which is being lead managed by ABN Amro, has been given a preliminary rating of Baa2 from Moody's Investors Service and BBB from Standard & Poor's Ratings Group, has got two of three of these bases covered. Not only does GE own almost half of the company, but the sponsor has signed a contract guaranteeing that it will purchase gas ranges from Mabe until 2011. The dollar revenue from sales under this contract provide the backing for the bonds.
"We're viewing it as being a pretty attractive deal," said one private placement investor who frequently looks at Latin American transactions. "The support from GE seems to be quite strong and we're very interested in [the trade]."
GE's participation in the joint venture, which also produces refrigerators, washing machines and other home appliances, indeed lends the facility a great deal of stability, but it does not necessarily warrant the price talk of 325 basis points over Treasurys on the deal, said one emerging markets portfolio manager.
"I think it's more of a pledge than a securitization," he said.
Another emerging markets debt fund manager barely glanced at the deal before passing, citing the impressive rally of sovereign debt on secondary markets as a much more attractive option.
But as crossover accounts steadily move back into emerging markets debt, issuers are finding the tight pricing, attainable through securitizations and the private market quite attractive. "It's just a matter of cost," said one official at Mabe. "Bancomex's [Mexico's premier lender] loan rates are not very low and it is not the time to be in the open market right now."