Bear Stearn's encounter with a Standard & Poor's downgrade warning and BNP Paribas' lockdown of three ABS funds served as stark reminders that subprime isn't through with the markets yet. Spreads across the board shifted further out. But subprime isn't hitting every asset class with equal force, and the re-pricing is still hardly grounds for panic given how lush the credit environment has been for the last few years.

For emerging markets, the pinch is most apparent on the cross-border side. It being summer, there aren't too many pricing signposts, but a pair of deals point to tougher conditions. Mexican originator Metrofinanciera closed a two-tranche deal on July 31 collateralizing construction bridge loans. Arranged by Credit Suisse, the transaction appeared to have escaped the worst excesses of the turbulence. Still, it wasn't Metrofinanciera's finest pricing moment. The Ps1.4 billion ($128 million), seven-year A piece priced at 115 basis points over 28-day TIIE. That's well over the 94 basis-point spread over 28-day TIIE that the originator obtained on a Ps1.7 billion bridge loan deal in January. Granted, there's one big difference between the two. The more recent one was cross-border - both foreigners and locals bought in - while the January deal was domestic. That explains some of the pricing discrepancy, but not all.

Also, last week Banco de Credito de Peru closed an Ambac-wrapped deal backed by diversified payment rights (DPRs). Led by Standard Chartered, the two-tranche bond priced at 28 and 25 basis points over one-month Libor, several points over other wrapped EM deals earlier this year.

On the European front, a DPR paper from Kazakhstan's Bank TuranAlem, with the likes of FGIC, MBIA and Ambac attached, hadn't priced as of press time. Arranged by Standard Chartered and JPMorgan, the transaction was taking longer to close than anticipated because of the gyrating markets, said a source familiar with the deal.

In Latin America's domestic markets, the drop in global liquidity remains less of a concern. Brazil, for instance, posted roughly R$6.2 billion ($3.3 billion) in issuance in the first half of the year, from R$4.2 billion in the same period 2006, according to S&P. Liquidity is still expansive in the banking sector and pricing among receivable investment funds (FIDCs) hasn't shown any widening trends, according to arranger sources.

In Mexico, while there certainly has been pass-through volatility, structured deals don't appear to be stalled. From January through July, the domestic market turned out Ps42 billion ($3.8 billion) in CDOs, future flows, and ABS/MBS, according to local brokerage IXE. That's only a sliver more than half the Ps80 billion in 2006 volume, so the pace is lagging a bit from last year. But the culprit, arrangers say, isn't so much liquidity retrenchment as fierce competition by only-too-liquid banks. And the market seems to be marching to its own drummer in ABCP as well, with Deutsche registering the first ever such issue in the domestic market just as a number of ABCP conduits in the U.S. lock down.

Finally, Argentina has witnessed quite a jump in interest rates, with consumer-backed deals that a month ago would have priced close to 10% now going for over 14%. But even the last heady week of July saw activity, and it wasn't just the rare dropshot, barely making it over the net. Three ABS were actually in play, showing volatility isn't yet shutting down the game. Issuance in the first seven months in the country hit Ps4.1 billion in the first seven months of the year, up 13% from the same period last year, according to Gainvest Asset Management. One Buenos Aires arranger said, though, that the pace could slow.

Thus the mood in Latin America is more cautious than dire. For emerging markets across the pond, a better test will come in September, when the City's bankers are back from holidays and we'll see if the slew of deals expected from Russia will be no goes, drop shots or just how sensitive Russian and Turkish originators are to the new conditions.

(c) 2007 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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