Mexico provided plenty of news last week to fill the lull in emerging markets chatter occasioned by the ASF conference in Las Vegas.

Apart from action on the mortgage front, MBIA has been working on a conduit program registered with local regulators. The vehicle in broad terms is understood to resemble the Meridian Funding Company, which is designed to issue medium-term notes backed by a variety of instruments. They include investment-grade ABS, secured and unsecured corporate obligations as well as sovereign obligations and interests in pools of consumer and corporate receivables, according to a report by Standard & Poor's.

An MBIA official declined to comment on the Mexican vehicle, which has yet to launch paper.

Initial placement buzz

The buzz in the market was that the monoline insurer was in talks to back an initial placement with receivables generated by a state in Mexico. That transaction apparently fell through and the insurer is looking for other assets. Notes issued off the Mexican trust are not confined to local currency denominations. The prospectus listed on the Mexican Securities Exchange lists euros and dollars as other currencies that could be tapped.

As registered with the Exchange, the program is capped at Ps25 billion ($2.4 billion). HSBC and BBVA Bancomer are named as the deal arrangers, but a source familiar with the program said MBIA isn't obligated to use them, even in its initial deal.

MBIA's business in Mexico so far has centered on the toll roads, which have been issuing second-generation local currency deals over the past few years to mend their financial health, which declined during the drastic devaluation of the Tequila Crisis in the mid-'90s. The fall in the peso caused the most pain for toll roads that had issued deals, or taken out loans, in dollars. As a result, since the late '90s there has been a shift in the sector to local currency debt, a trend that MBIA has encouraged by offering surety in the domestic market.

Meanwhile, Citigroup unit Acciones y Valores Banamex has registered a domestic program backed by cross-border Mexican bonds. The idea behind these kinds of deals is to take advantage of arbitrage opportunities in currency and interest rate spreads between the local and foreign markets.

"You have to find the exact moment when it's right to issue them," said one Mexican market source.

But the moment apparently never struck for Credit Suisse or Deutsche Bank, which had both tried to issue this type of ABS in Mexico, according to sources. The program that Deutsche registered expired and hasn't been renewed, according to a source close to the deal. The same apparently holds true for the Credit Suisse vehicle, sources said. Some market participants are asking how Banamex will ferret out opportunities where two other global banks have found none.

Officials didn't return calls for comment at Banamex, Credit Suisse or Deutsche Bank.

Banco de Bajio deal stalls

Elsewhere in Mexico, regulators have stalled a deal for Banco de Bajio.

"The [securities] commission required more information," said a source close to the transaction. "The idea is for it to come out in mid-February."

Initially scheduled for late December, the deal is backed by loans to states and state entities and has secured a preliminary mxAAA' rating from S&P on the national scale. The size is capped at Ps4.4 billion and final maturity is 16 years. Invex is the placement agent while Monex is the structurer.

Collateral consists of loans to a variety of subsovereign entities at state and municipal levels. They have vintages running from December 2002 to July 2005, and range in volume from Ps100 million to Ps1 billion.

(c) 2006 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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