Mexico's domestic securitization market kept up a brisk tone through the end of 2002, boding well for a country that is drawing increasing attention from bankers on the Street. As expected, Santander kept the market alive in late December. The Spanish bank came out with the second of three issues from a trust backed by payroll taxes in the State of Mexico. The deal is structured by Protego Asesores, with Thacher Proffitt & Wood providing legal counsel (see ASR 10/2, p.19).

A five-year floater totaling Ps245 million (US$23 million) yielded 300 basis points over three-month Cetes treasuries, the same rate as the first Ps334 million (US$32 million) issued in early December. An eight-year fixed-rate slice worth Ps619 million (US$59 million) priced at 12.5%, 50 basis points tight to the first issue of Ps186 million (Ps18 million). So far, a total Ps1.38 billion (US$132 million) has been issued under a Ps2 billion (US$192 million) program. Timing has not been fixed for the third and final issue.

The transaction was rated AA' on the national scale by Fitch Ratings, after the originator decided to drop an A' national-scale rating by Standard & Poor's. The lower rating would have kept the deal out of the reach of pension funds. In the end, the funds took about Ps600 million (US$58 million) of the total Ps864 million (US$83 million) issued in late December.

The deal is the first of its kind in Mexico and underscores the increasing sophistication of sub-national securitizations in the country. The sector is expected to enjoy robust growth in 2003.

Santander also closed a Ps2.5 billion (US$240 million) program for the state of Chihuahua, with toll road revenue from nine highways as collateral. On Dec. 19, Chihuahua priced Ps1.1 billion (US$105 million) of a 10-year bond at a real 7.5%. The paper is denominated in inflation-indexed units (UDIs). The deal is rated AAA' and AA+' on the national scale by Fitch and S&P, respectively.

Santander was the issuer with Corporativo de Finanzas as the structuring agent. A large chunk of proceeds are going to fund new infrastructure projects in the state. The deal has a overcollateralization of 2.1x and a reserve fund equal to 15 months of payments.

Further down the road is a 12-year bond for up to Ps1.5bn (US$144 million). Designed for

the state of Guerrero, the deal is backed by federal co-participa-tion revenues. Flows trapped in the trust equal about 22% of the state's total revenues.

Timing for the Guerrero deal is set for the end of January. Interacciones is leading the transaction, which is rated AA+' and Aa1' on the national scale by S&P and Moody's Investors Service, respectively. Proceeds are going to pay down existing debt. Guerrero is in the southwest of Mexico. Its best-known city is tourist mecca Acapulco.

Also keeping busy in Mexico is BBVA Bancomer, which plans to go on roadshow for toll-road deal Cardel-Veracruz in mid-January. Sized at Ps700 million (US$67 million), the deal carries a 10-year maturity and is understood to be receiving a national-scale rating of AA+' by both S&P and Fitch. Collateral is future toll revenue from the highway Autopista Veracruz-Cardel, which links the Gulf port of Veracruz with the state capital of Jalapa.

Bancomer's last deal in the toll-road sector was Autopista del Mayab, which priced on Feb. 7 last year at a real rate of 9.25%. That deal raised Ps242.6 million (US$23.9 million) and carried a tenor of 17 years.

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