Metrofinanciera Deal Falls Below Investment Grade

More bad news hit Mexico's construction loan sector over the past couple weeks, and a cross-border transaction is now among the casualties.

Earlier this month, Standard & Poor's cut its rating on the A piece of originator Metrofinanciera's 2007-1 to sub-investment grade, from ‘BBB+' to ‘BB+'. The rating remains on CreditWatch negative.

The previous week, Fitch Ratings had downgraded five deals backed by Metrofinanciera-originated construction loans, including the 2007 cross-border deal. Those transactions remain on Fitch's Rating Watch Negative. The cross-border deal fell to ‘BB' from ‘BBB', also busting through the investment grade floor.

The deal is investment grade now only at Moody's Investor's Service, which nonetheless has had its ‘Baa1' rating on the Class A notes on review for possible downgrade since July 1. Currently, the agency has all the construction loan deals it rates from Metrofinanciera on review for possible downgrade.

The story with the cross-border deal for the most part applies to Metro's domestic construction loan transactions as well. Delinquencies are up, and amortizations in the collateral have slowed down. In particular, the ‘07-1 series has 35.64% in total delinquencies and 1.92% in the over-90-day category.

"In addition, the portfolio has excess spread of -0.90% and a large gap between construction and sales, at 68.14% during the revolving period," S&P said in its release.

In its report on downgrades for all of Metro's construction loan deals, Fitch said that the revolving nature of the deals and the possible need for future support bring them closer in sync with the creditworthiness of Metrofinanciera, currently at ‘B+' and ‘BBB(mex)'.

"Metrofinanciera has indicated its intention to support these transactions through the substitution of non-performing collateral," the agency added.

Led by Credit Suisse, the A tranche of the cross-border transaction amounted to Ps1.4 billion ($141 million) with a seven-year maturity. The B tranche, for Ps214 million and with the same seven-year tenor, was rated ‘A(mex)' and ‘mxA' by Fitch and S&P, respectively, at issuance. It is now at ‘BB(mex)' and ‘mxBB+', respectively. The transaction closed July 31, 2007.

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