In a deal expected to close this month, the Argentine Province of Salta will make history by piercing the sovereign ceiling with the first-ever royalty-backed deal.

The deal comes despite a full-blown economic recession, uneasy political turmoil, and a seemingly sluggish securitization market in Argentina (see story p.1). Fittingly, the transaction authenticates a well-maintained base growth of the securitization market as it provides a good source of financing for many banks and companies.

Lehman Brothers will structure the $250 million deal, in which the Province of Salta will securitize its oil and gas royalties. One of the rating agencies has said the deal will receive investment-grade ratings as a result of certain features of the transaction, one of which is the inclusion of political risk insurance.

The company supplying the insurance has not yet been determined. Political risk insurance for an Argentine deal is a plus, considering all of the recent issues the Argentine government has faced.

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