Mexican Citigroup unit Acciones y Valores is expected to roadshow this week a peso-denominated deal backed by the sovereign's cross-border 8.375% notes due 2011. This is the first bond of its kind in Mexico, with Deutsche Bank and Credit Suisse both having registered similar programs that have yet to produce a transaction. The impetus behind these simple CDOs is arbitrage. "The swap curve makes the arbitrage attractive," said a source close to the deal that is in the market.

The bond will be sized at up to Ps4 billion ($376 million) and will be a virtually exact mirror of the underlying collateral, except that the denomination is in pesos and payments will lag the collateral's coupon dates by a couple of days. A currency swap is being provided by Banamex, which owns the arranger. Pricing could come as early as this week.

Fitch Ratings and Standard & Poor's have rated the transaction triple-A on their respective national scales. The rating is largely based on the fact that the underlying collateral is Mexican sovereign risk, which at both agencies has the highest creditworthiness on the national scale. As the swap provider, Banamex is absorbing risk from shifting interest and exchange rates.

This kind of CDO has already been issued in Colombia and Chile, spurred by bankers eager to cash in on discrepancies between local and foreign bond yields, after factoring in the exchange rate. Another potential driver for these transactions is the search for a counterparty to an FX operation. That was understood to be behind a series of cross-currency CDOs that had swaps provided by Credit Suisse.

Meanwhile, Arrendadora Unifin is planning a securitization via local brokerage IXE. Details of the transaction are sketchy, but the originator will likely tap car leases, its main area of business. This would mark a debut for the asset class in Mexico, which has already played host to auto loan deals. S&P, which will rate the structured deal, has already given Unifin an AVERAGE grade as a servicer.

Some 96% of the car leases provided by Unifin were with companies, according to a report by S&P. Mexico City accounts for 55% of its business, which is conducted with 70 car distributors. Unifin receives financing from both banks and the capital markets. From the end of 2001 to September 2005, the company's lease portfolio averaged a steep 44.6% in annual growth. The number of leases hit 1,251 in September of 2005.

Unifin started operations as Arrendora Axis in 1993 and took on its current name in 1996.

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

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