Mexican investors are finding a spike in domestic interest rates and the uncertain trajectory of global events tough to swallow. Their sudden squeamishness has led Deutsche Bank to hold back a Ps672 million (US$67.3 million) seven-year securitization of bridge loans for construction, initially slated for Oct. 15, said sources familiar with the transaction originated by housing lender Su Casita. "Some of this is particular to Mexico, some isn't," said one source. Deutsche aimed to close this week.
Though short-term rates eased at the last auction on Oct. 15, they have yet to approach the levels seen before Mexico's Central Bank tightened the monetary belt earlier this month. The yield on six-month Mexican treasurys - the benchmark for Su Casita - edged out 24 basis points to 9.14%.
Should concern die down, the Ps600 million (US$60.1 million) senior tranche of Su Casita will probably price near unofficial price talk of a 100 basis-point spread, since that piece has a triple-A' national scale rating from all three agencies, sources said. Support for the deal comes from a reserve account for shortfalls in interest payments and a 1.54 overcollateralization that stems largely from the fact that only 65% of the sale price of property for low-income sectors is advanced according to a standard timetable. The senior piece also enjoys a 16% credit enhancement from a Ps71.4 million (US$7.1 million) B tranche, which has a Ba2.mx' rating from Moody's Investors Service. The B tranche in turn has a 6% enhancement from a Ps42.9 million (US$4.3 million) C tranche.
Elsewhere in Mexican housing...
Deutsche is keeping busy in another related arena, sources said. The bank is heard to be one of the major players keen on handling the country's first true MBS deals (see ASR 10/14/02, p. 1).
On that front, government agency Sociedad Hipotecaria Federal (SHF) is plowing ahead with Mexico's first MBS master trust for close to Ps10 billion (US$998.9 million) But even as it dangles that massive prize in front of potential issuers, participants are already citing eventual hurdles to a thriving sector. One source noted that, under current regulations, pension funds are not permitted to hold more than 10% of assets in debt from financial institutions.
Since the special-purpose financial companies that originate mortgages in Mexico are subject to this regulation, it would be extended to MBS placements, unless the rules change. "It's not going to be an obstacle at first, particularly since insurance companies will be the main buyers, but eventually the limits will either have to go up or special rules will have to be designed for the SOFOLes [special-purpose financial companies]," a source said.