August was anything but slow in Mexico, as three new issues hopped into the already hopped-up pipeline.

State credit agency Fonacot has slated its first visit to the public market for Ps500 million (US$46.1 million). The company provides consumer credit to workers and then automatically deducts payment from their paychecks. Led by Scotia Inverlat, the issue will securitize a single, non-revolving pool of credits. "The main risk here is that the worker loses his job," said Luis Enrique de la Pena, an analyst at Fitch Ratings, which gave the deal a AAA(mex)' on the national scale. In order to be deemed long-term debt, the transaction has been termed at 366 days, one day over a year. In addition to a reserve fund, the deal enjoys an enhancement from three-month unemployment insurance backing the collateral. It forms part of a Ps1 billion (US$92.2 million) program. A second issue with revolving collateral is planned for the medium term.

Going on roadshow this week, de facto power monopoly Comision Federal de Electricidad (CFE) is set to tap the market with a CLO, according to a source on the deal. Holding triple-A ratings from Fitch and Standard & Poor's, the transaction - or series of transactions - will be backed by loans that ING Barings will extend to CFE projects. The bank is also the lead on the program, which is capped at Ps6 billion (US$553.4 million). One or multiple loans can back each issue. The structure allows CFE to keep the debt off its books, the source said.

CFE placed Ps2.2 billion (US$202.8 million) in short-term paper earlier this year, backed by supply contracts. The company generates 95% and distributes 90% of the country's power.

Another issuer that kept the pipeline moving in August was the state of Hidalgo. The sub-national is readying a transaction for up to Ps1.2 billion (US$110.7 million), backed by slightly under a third of its federal co-participation revenues, according to a source familiar with the deal. IXE is the placement agent, while financial consultancy Intefin structured the paper. The bond has a legal final maturity of seven years and is expected to secure triple-A ratings from Fitch and S&P. Located in central Mexico, Hidalgo is a leading producer of cement, manganese and barley. However, it is relatively poor, with a per-capita income marginally over half the country average.

This marks IXE's second foray into the subnational world, following a deal for the state of Morelos in December 2001. The brokerage is heard building a structure for the state of Sinaloa.

End of summer splash

While those issuers dropped into the pipeline over the last several weeks, three other deals sprang out. The state of Guerrero closed a financing program backed by federal co-participation revenues on Aug. 18, with a second issue of a 12-year legal final bond. Pricing on the Ps480 million (US$44.3 million) placement was 100 basis points over Cetes or the benchmark TIIE rate, identical to the first one (see ASR 5/26, p.22). The latest issue goes to refinancing all the direct loans owed to Banobras and Banamex. Credits from its municipalities that Guerrero has assumed or backed remain outstanding. This transaction shuts the door on a Ps1.34 billion (US$123.6 million) program that stretched out the state's debt profile and cut its financing costs, according to a source on the deal. Interacciones led the deal and Valencia de Toro provided legal counsel.

Two sub-national deals were also brought to market by brokerage firm Value. San Pedro Garza Garcia, a municipality in the state of Nuevo Leon, priced a Ps110 million (US$10.1 million) bond at a fixed rate of 9.5% on July 24. Collateral is comprised of federal co-participation revenues and the legal final maturity is seven years (see ASR 7/28, p.19). A fixed rate on a deal with a term this long is rare among securitizations, though it is fairly common among well-established corporates. The fact that federal revenues is an entrenched asset class no doubt helped coax investors to accept the fixed rate.

Finally, the last Mexican securitization to price this summer was Nuevo Leon. Tapping the market for Ps978 million (US$90.2 million) on Aug. 21, the issuer became the second in the country to back a program with payroll taxes after the State of Mexico broke in the asset class last December (see ASR 7/21, p.17). Nuevo Leon priced the 12-year legal final deal at 225 basis points over six-month Cetes. Along with Value as the lead arranger, Santander Serfin and Banorte were co-managers. Fitch Ratings gave the paper AAA(mex)' on the national scale and Thompson & Knight was legal counsel.

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