In a conference held by Moody's Investors Service in Mexico last week, Banco Nacional de Mexico (Banamex), Mexico's second largest bank, introduced its plan to work with the federal government of Mexico to establish a transaction that resembles a securitization of tax receivables.

The federal government has been working to create a master trust in which the Secretaria Haciendo y Credito Publico (S.H.C.P), the Ministry of Finance, will take a portion of the tax revenue that would normally go to the state and place it in a master trust. The remaining amount would be transferred to the state treasuries and from that amount, the state would share a portion of the received revenue with the local treasuries.

The trust will then make payments on loans owed to banks. Therefore, the trust provides credit enhancement and acts as a guarantee. Additionally, the risk of the state defaulting on a loan is eliminated.

The objective is to make banks more willing to lend to the states and municipalities and to lend at a lower interest rate. According to a source at Banamex, the new system will generate a future securitization market for subordinated debt that will attract investors.

"This is a special kind of securitization because the trust is not going to issue anything, it's a way in which they will formalize collateral," one analyst said. "The only thing [the trust] will be doing is paying the loans - in Mexico, this is called a payment trust."

Argentina currently has a system similar to what Mexico is attempting to create.

At the moment, the Mexican federal government collects taxes from the individual states and returns a certain portion of the revenue to the states and the states then give a portion of that returned revenue to the local treasuries. The states are responsible for payments on loans to banks, and as a result banks are apprehensive to lend to certain Mexican states and if money is lent, it is typically at a high interest rate.

The conference hosted by Moody's was specifically geared toward the states and municipalities of Mexico, and pertained to credit ratings. The conference was scheduled to cover what Moody's has accomplished since it was established in Mexico in June 2000.

Additionally, the benefits of credit ratings, the need for ratings and what the future holds for the Mexican market were some of the topics up for discussion.

On behalf of Banamex, Louis Hernandez Aramburo, subdirector of the structured finance group and Adriane Ramirez Moreno, also subdirector of the structured finance group, presented plans for the new system.

Laura Barrientos, vice president senior analyst and Steve Hochman, senior vice president, both from the International Subsovereign Group, were on the list of speakers for Moody's. Additionally, the conference featured guest speakers such as Alonso Garcia Tames and Carlos Hurtado from a sector of the federal government.

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