While the cross-border market has shifted into overdrive, Mexico has slowed down. Partly to blame are the summer doldrums and the fact that some of the deals in the pipeline are backed by new assets, which take longer to structure. But for two of these, at least, regulators appear to be at the root of delays, according to sources.

One is a CLO for the Federal District, the heart of Mexico City. Structured by Citigroup, that deal is being held up on documentation issues. The initial issue off a Ps5 billion (US$471 million) program is sized at Ps2.5 billion (US$236 million). The deal will be a securitization of a loan from Citigroup, with payments coming in the form of federal co-participation revenue flowing to the Federal District (see ASR 5/26, p.23).

The second deal is from Ecocys and is sized at Ps265 million (US$25 million). "We still have not gotten the final nod," said a source close to the deal. When it does come out, it will mark the second issue from the sewage treatment company, following a Ps310 million (US$29 million) issue of three-year paper in November 2001 via Banorte. The risk of that deal hinged partly on the credit standing of the State of Mexico, which only late last year turned around an ugly market reputation.

This time the sewage treatment company is working with BBVA Bancomer as issuer and has retained Gulesserian Consultores as financial advisor. The collateral is comprised of a monthly tariff fee that SAPAL, the public water company of the municipality of Leon, is obligated to pay Ecocys for the construction and operation of sewage treatment plants. Fitch Ratings rates SAPAL AA-' on the national scale, but the deal has garnered a preliminary rating of AA+' from Fitch and Standard & Poor's.

The ratings differential stems in part from the fact that the fees from SAPAL to Ecocys have an implicit guarantee from state bank Banco Nacional de Obras y Servicios Publicos (Banobras) through a revolving credit line, which is drawn if SAPAL cannot make payments. The credit line, in turn, is backed by the city of Leon and its home state of Guanajuato. Under certain conditions, Banobras is authorized to divert federal participation revenues designated for Leon and Guanajuato to make payments on the deal. Moodys Investors Service and S&P have given respective ratings of Aa3.mx' and AA' to Leon and Aa1.mx' and AA-' to Guanajuato.

In addition, the tariffs are inflation-indexed, which coincides with the denomination of the paper. "That gives the program more certainty because you know how much is being generated," said Marcela Andrade, public finance analyst at Fitch. Last April, SAPAL paid Ecocys Ps4.798 million in the tariff earmarked for the structure.

Ecocys will be using the proceeds to refinance bank loans and other credit assumed by the company's shareholders in the construction and operation of the sewage plant.

Leon is a center of leather goods and shoemakers. As of the end of 2002, over half the footwear made in Mexico originated in Leon, according to Moody's.

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