During the last month of the year, Peru perked up, while an old hand from Brazil returned to the market.
The three deals showed there was life in diversified payment rights (DPRs), in contrast to many other niches of global structured finance.
Notwithstanding the vote of confidence from this corner of the structured finance world, it appears that none of the deals went to market investors, according to sources.
One transaction was a debut. On the last day of ABS's definitive annus horribilis, Banco Continental issued its first DPR-backed deal for $250 million. Arrangers Sumitomo Mitsui Banking Corp. (SMBC) and WestLB each took half of the seven-year deal, according to Ana Cecilia Akamine, head of financial management at the bank, a unit of Spain's BBVA. "This is a source of funding that opened a new opportunity," she said. "We're very pleased."
Fitch Ratings and Standard & Poor's rated the deal 'A' and 'A-', respectively.
Akamine declined to disclose pricing on the transaction. She added that the bank might come out with additional series off its DPR program this year. "It depends on how the flows evolve," Akamine said.
Underscoring the importance of DPRs to Continental's operations, "management has indicated that trade financing is a cornerstone of its corporate business," S&P said in a report. Highlighting its importance to the country's banking system, the bank is the second largest financial institution in Peru.
Electronic money orders processed by Continental have consistently grown over the last few years. DPR volumes jumped an annual 46% in 2007 and grew a further 32% in the first three quarters of 2008, year-on-year.
Based on the recent volume of flows, coverage levels for the DPR program are expected to be about 100 times the maximum debt service, according to Fitch.
Nevertheless, the flows are strongly linked to the value of commodity exports, which has been under pressure over the last several months. However, from S&P's standpoint, even a fairly steep drop in prices might not undermine the deal's creditworthiness, as long as tonnage remains the same.
"Assuming no change in trade volumes, we estimate that a 50% reduction in the price of related commodities would decrease the DPR flows by nearly 18%, which currently would not affect the rating," the rating agency said.
Meanwhile, in mid-December Banco de Credito del Peru (BCP) issued a second 2008 series off its DPR program. The seven-year, $150 million deal carried an 'A-' rating from Fitch. An S&P official said the agency didn't issue a public rating on the deal, though it gave an 'A-' to a $150 million issue off the program earlier in the year.
SMBC led the transaction and, according to a local news report cited in Bloomberg, also purchased it. The originator didn't return a request for comment.
The deal brings the total outstanding volume of the originator's DPR program to roughly $1 billion, according to Fitch. By a number of measures, BCP is Peru's largest bank. As of September, its total assets reached $20.8 billion.
Lastly, Brazil's Banco Bradesco joined its Peruvian counterparts in issuing a $500 million, seven-year transaction off its DPR program. Bank of Tokyo-Mitsubishi lead the transaction, which was rated 'A' by S&P.
Bradesco's DPR flows totaled $33.4 billion in the first 11 months of last year, up appreciably from the nearly $27 billion posted in all of 2007 and almost $19 billion in 2006.
What may turn out to be a compelling strength of Bradesco's DPR program over the near term is its relatively low exposure to commodities. Commodity exporters generated around 23% of its DPR volumes, with most operating in the agribusiness, metals and mining sectors, according to S&P.
"A 50% reduction in the prices of related commodities will decrease the DPR flows by approximately 12%," the agency said. "Such a decline in flows would not result in a ratings action."
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