The credit crisis rippling from the U.S. was pressuring liquidity in Latin American markets well before the bailout plan's "will they or won't they" moments last week sent stocks in the region gyrating.
Players in different countries managed to squeeze ABS deals through, but pricing for some transactions toward the end of the quarter was, in some cases, brutal.
Take GMAC Mexicana. The company was certainly chancing it by placing a first-time trade backed by cash flows from loans to affiliated dealers. As it turned out, an A tranche totaling Ps1.5 billion ($137 million), with a two-year expected life, priced to yield 200 basis points over 28-day TIIE. That's the highest spread ever over that particular benchmark for a local structured paper rated triple-A on the national scales of Moody's Investors Service and Standard & Poor's, according to one analyst. To be sure, ASR's records show that to be the case for at least the past five years.
And it wasn't that the TIIE has been low either. At 8.67%, the benchmark rate hasn't been this high since late 2005.
Mexican investors are not only steeling themselves for fallout from the U.S. economic slowdown, they are sharply differentiating between structured deals, even when they're in the same ratings category. Over the past few months, they've been far kinder to future flow transactions and existing assets from entities like state-owned Infonavit.
Meanwhile, a cross-border transaction from Latin America actually closed Sept. 23, but part of its placement was attributable to domestic investors, in this case from Peru. Rated 'BBB-' by Fitch Ratings, the transaction totaled $254 million and collateralized Peruvian government payment obligations related to a toll road concession in the country. This kind of deal has been done before, but not in today's climate.
What helped is that Peruvian investors are buy-and-hold types, and they're not exposed to the toxic stuff coursing through this country. Also, they've been buoyed for some time by a strong savings rate and stellar growth. One tranche of the deal, for $72 million, reportedly priced to yield 8.9%, only 15 basis points over a comparable two years ago. The roughly 210-basis-point spread over Peruvian sovereign bonds was enough of a yield pickup to sate the locals. A 12-year tranche in the deal went to synthetic cross-border investors, but no pricing was
disclosed, according to a source familiar with the transaction.
Finally, while the wild swings in Brazilian stocks last week will likely lead to more care in investing, issuance of shares in receivable investment funds (FIDCs) has shown no signs of slowing. Indeed, in a report last month Standard & Poor's said volume hit R$7.5 billion ($3.9 billion) in the year through August, up 20% from the same period in 2007, according to data from Brazil's securities commission. S&P predicts it could top R$10 billion, thanks in part to the country's upgrade to investment grade in April.
Two caveats, though. First, recent regulations require capital adequacy ratios to incorporate securitized assets when the originator holds a significant subordinated chunk of the deal in question. That, the agency noted, could deter larger banks from entering the ABS field. The other caveat is that figures on FIDC issuance aren't especially accurate in providing a picture of funding activity. Skewing the number upward are factoring companies that use the vehicles as a tax-saving strategy and deals that are funds of funds (and so are counted twice), among other factors, sources said.
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