Already familiar to Brazil's domestic market, a financing vehicle for construction company Grupo Walter Torre is taking root in Mexico. "It's nearly identical to the deals done in Brazil," said a source close to the transaction. Spanish bank Santander is readying a deal for up to 131.5 million of UDI inflation units (US$40 million), backed by rights to 10-year rental contracts between Walter Torre unit WTN Desarrollos Inmobiliarios de Mexico and food giant Nestle. The deal marks the Mexican debut of this asset class. Legal final maturity is set at nine years.

The contracts are linked to the property and construction of storage facilities in Lagos de Moreno in the state of Jalisco and Toluca in the state of Mexico. The rights to real estate insurance taken out by WTN will also be transferred to the vehicle.

Standard & Poor's has rated the transaction mxAAA' on the national scale. Proceeds will go to retire a bridge loan extended by Santander to the construction company. The deal represents a unique opportunity for Mexican investors to take on Nestle risk. The world's largest food and beverage company, Nestle has been operating in Mexico since 1930 and wields an average market share of 65% in its business lines.

Ritch, Heather and Mueller is legal counsel on the transaction.

The deal replicates a structure that has been issued a few times in Brazil's domestic market. The most recent placement closed in January and was a virtual mirror image of the upcoming Mexican transaction, with Santander as the underwriter and the creditworthiness bound to Nestle. While Santander's bankers in Sao Paulo did not work directly on this Mexican incarnation, their colleagues in Mexico City used the Brazilian deals as a model, sources said.

Calling on Telesp

Meanwhile, in Sao Paulo, the Spanish bank is bringing the structure back and this time the paper holds a direct line to telecom corporate Telesp Celular (TC). Sized at R$94.8 million (US$32.5 million), the bond has a legal final maturity of 12 years.

Collateral for the transaction are credits, rights and residual compensation amounts stemming from a built-to-suit agreement among TC, Walter Torre Junior Construtora and WTTC Securitizadora de Creditos Imobiliarios, the vehicle issuing the paper.

Telesp has agreed to lease a building erected by WTTC on real estate the construction company owns. Risk on the paper mirrors the credit standing of Telesp, rated brAA-' by S&P.

Breaking from the Nestle-linked deal that closed in January, the current transaction will disburse payments on an annual basis instead of a monthly one. Annual payments are a better fit for the IGPM, said Ricardo Leoni, vice president of Santander Brazil. Under the stepped-up amortizations, inflation could only be incorporated at the end of the year. "On an annualized basis, we update the whole principal and then pay out," Leoni said.

The tweaking is designed to woo investors, particularly pension funds, which latch their targets onto the IGPM. That might explain why Santander aims to price the deal at 12%, 500 basis points inside the Nestle-related bond, even though the previous transaction held higher ratings. Standard & Poor's gave that deal brAAA' on the national scale, while Fitch Atlantic Rating rated it a AA(bra)'. Meanwhile, the Telesp transaction is rated brAA-' and A(bra)'. S&P has placed both deals two notches above Fitch.

Brazilian securitizations do not need two ratings in order for institutional investors to buy in. A double rating is mandatory only for a single pension fund to snap up more than 20% of a single issue.

While the Nestle deal enjoyed scarcity value - there is no other way for Brazilian investors to directly or indirectly invest in the Swiss giant - Telesp has issued before. In fact, the telecom firm closed a R$700 million debenture deal as recently as August. But Santander, which handled the corporate deal as well, is marketing the securitization to a different investor group than the debenture holders. With their shorter-term horizon, asset managers went for the corporate paper, with its legal final maturity of five years and yearly put and call options. The longer-dated securitization is being marketed to pension funds.

Telesp Celular is owned by Telesp Celular Participacoes, which provides wireless services to roughly 11 million subscribers spread over 14 Brazilian states.

Tozzini, Freire, Teixeira e Silva is legal counsel.

Santander has already underwritten the paper at a 13% coupon rate to replace a bridge loan to Walter Torre by the same bank that was coming due. Closing the transaction in the secondary market will probably take a couple of weeks, Leoni said.

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