Held in May, the Securitization and Structured Finance in Latin America (SiLAS) conference hosted by Euromoney Seminars and LatinFinance turned out to be a postmortem of sorts, except that the event being taken apart - the crisis and its aftermath - is not entirely over, especially in Mexico.
Still, there were plenty of reasons to be optimistic, and the view expressed by some that in a few years the business will be where it was pre-crisis didn't seem farfetched.
For now, however, players still have their work cut out for them, especially outside Brazil, where securitization hardly experienced trouble.
The mainstream view of the industry that has seized the minds of investors across the world will be difficult to dislodge. "Securitization is now seen as increasing risk rather than allocating risk," said the International Finance Corp.'s Global Head of Structured Finance Lee Meddin in opening remarks. As a result, transactions in placed like Mexico and the crossborder front have become sporadic. "The more granular business that we knew isn't there," Meddin added.
But as Juan de Mollein, managing director of emerging market structured finance at Standard & Poor's, reminded the audience, issuance in Latin America has fared far better throughout the crisis than in other emerging markets. In 2009, structured finance placements in the emerging world outside LatAm shrank 58% from 2008, while in LatAm it dropped only 6%.
What is more, private structured deals in the region actually increased more than sevenfold in 2009, as investors focused on a small number of deals and bypassed tumultuous capital markets.
One thing is for sure: there has been a shift away from assets that were once popular, most notably housing-related collateral in Mexico.
Mayer Brown Partner Jim Patti said there was a need to "reboot." He noted that one of the traditional reasons for doing a structured deal in cross-border issuance - piercing the sovereign ceiling - holds less sway today. In addition, commodity exporters in the region still don't need cash, which keeps a number of potential future flow issuers out of the game.
Fitch Ratings Director Greg Kabance added that crises in emerging markets have always molded how analysts look at this business. "I think we've done a good job extrapolating crises," he added.
But many players made mistakes, as evidenced by fast-deteriorating collateral in Mexican deals backed by mortgages and, even more so, by construction bridge loans. "The infrastructure of the system wasn't keeping up with growth," Kabance said.
Construction bridge loans issued by nonbank originators known as Sofols have provided a particularly nasty lesson, as participants now see a closer link to the originator and question how aggressively some of these grew their books in order to compete with each other and banks. But more and better scrutiny may not be able to save that particular asset class from becoming an ABS memory.
"In other countries, the securitization of bridge loans doesn't even exist," said Ignacio Farias, CEO of Patrimonio, a Sofol and originator of the loans. (See page 29 for Q&A with Farias.) "And now we think it's too difficult here." Patrimonio's own bridge loan deals are almost fully paid down.
Jorge Unda, managing director of investments at BBVA Bancomer Asset Management, said the Sofols became too ambitious and lost direction with what the credits were actually meant to finance. "When the credits were for projects of low-income houses and you already had demand from Infonavit (the major government lender of mortgages), everything worked fine. But what happened is that some of the credits starting going to residential projects without the same capacity," Unda said.
The deregulation in the sector beginning in 2006 was partly to blame, he added.
"If you want to play in this game, you have to be regulated," Unda said. "You can't have financial entities that aren't regulated. In the end they're going to maximize profits, and sometimes maximizing profits isn't good for everybody."