Last week IMN held its second Securitization in Mexico conference in the country's capital, the Federal District. About 320 people showed up, the same as last year. While conference fatigue and whirligig markets have chipped away at attendance in ABS powwows elsewhere, this one, while looking stunted, has inarguably held up well.
This reflects the market's fair degree of resilience to the credit scares abroad, but the arch-devil of subprime had to be summoned if only to exorcize him. One early panel that took stock of what's happened since the last conference was laced with subprime talk. Mexican market players repeatedly insisted that they're inoculated against the disease in El Norte-and rightly so. Still, there remains a sense that they have to remind themselves why. Here it is: "Mexican mortgages are low-income, but they're not subprime," said an emphatic Eugenio Lopez, head of Mexican structured finance at Fitch Rating.
Meanwhile, the oxygen sucked out of the market by the drop in global liquidity is seeping back in, and pricing on deals in the last few weeks hasn't been as spooky as some had feared. But the buyside isn't going back to the way things were before the summer either.
Four other issues stood out in the conference: the impending arrival of ABCP, the looming arrival of covered bonds, the dead on arrival of foreign money into subordinated tranches and the rising indebtedness of lower-income Mexicans.
After a good deal of waiting, Deutsche Bank has finally secured approval from regulators and is good to go with the country's first peso ABCP conduit. Deutsche Director Brigitte Posch said it should launch in early December or early next year, with initial collateral of four RMBs and one consumer loan deal. It might seem bold to enter a market that's gotten so ugly abroad, but Posch is undeterred, and believes that Mexican investors will bite.
Covered bonds was another area that provoked discussion among participants. Most waxed enthusiastic about the yet-to-debut product (covered in the Sept. 10 issue of ASR), with Fauto Humberto Membrillo, head of analysis and risk at state agency and monster originator Infonavit, stating flat-out that once barriers to doing covered bond deals were cleared, the product would be more appealing to Infonavit than RMBs.
But the fans may be letting their excitement get the better of them. At least one panelist hoped out loud that European investors would go for Mexican covered bonds. It'd be a tall order to whet the appetite of the exceedingly low-risk investors who gobble up covered bond in the Old World. Sure, a Mexican covered bond could hit double- or triple-A on the national scale, but on the global one?
Also on peoples' lips was the faded appetite for mezzanine tranches, namely in RMBS. Before summer, demand for that product had been stoked by foreign investors. The liquidity retrenchment appears to have sent them home, a turn of events that could bring the International Finance Corp. back into buying these pieces, which had become too dear for the multilateral last spring, according to Lee Meddin, global head of structured finance at the IFC.
Finally, a few participants I canvassed were concerned by the fast-expanding indebtedness of lower-income Mexican households. Much of the leverage uptick has come in the past several years, nudged along by healthy economic growth and easing interest rates. How the newly indebted would behave if the climate turns is anybody's guess. "Nobody really knows how these individuals will react if a stressful scenario comes on the horizon, and they can choose which [credits] they'll default on and which they'll keep on paying," said Juan de Mollein, managing director at Standard & Poor's. "That's a question everybody's asking."
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