Mortgage securitizer Titulariza- dora Colombiana floated its third issue July 19, selling through Dutch auction Ps135 billion (US$48 million), for a total senior issue of Ps449 billion (US$160 million). As before, tax exemption on the bonds worked like a magnet on investors, helping take the average weighted yield on the three-tranche deal to an inflation-indexed 4.76%.

But not everyone cheered. The tight yields froze out more than a few bidding investors, and tongues wagged for days about a suspiciously large purchase of roughly 85% by Davivalores, an arm of one of three originating banks, Banco Davivienda. "The placement was very attractive... but not everyone was happy and some wondered why so much went to Davivalores," said a trader at another one of the 12 placement agents.

Davivalores did not submit precise data on the final buyers of its whopping order, but overall figures provided by Titularizadora indicate the brokerage must have purchased a good deal on behalf of other investor groups apart from banks, such as investment funds (see table of demand and allocations).

While sour grapes may have motivated a few players to question heavy demand from Davivalores, the difference between the bidding yields and final pricing was not drastic, according to Mauricio Amador, vice president of finance at the Titularizadora (see pricing table). "There were a lot of investors who stayed out just because of a few basis points," he said. The bid-to-offer ratio was five times.

Among those willing to pony up were investment funds and companies, which have been captivated by the tax exemption of MBS since the first issue last year. Pension funds, which are exempt anyway, flexed their muscle in the bidding, but atrophied to nearly nothing in the actual sale. "They didn't value the deal that way other investors did," said Nicolas Brezing, a market analyst with Titularizadora.

As in the two previous deals, the paper priced tight to treasuries, despite their lack of liquidity vis-a-vis government bonds (see pricing table). The negative spread for the shorter-dated bonds has shrunk in every placement, an indication that investors are moving up the curve because of prepayment risk.

Fitch Ratings affiliate Duff & Phelps rated the deal AAA' on the national scale. The International Finance Corp. provided a nominal 2% guarantee on the 69% of the mortgage pool that is not for low-income housing. "We want to honor our commitment to investors to participate," said Lee Meddin, chief structured finance officer at the IFC. At the same time, the entity aims to tread lightly, hence the tiny size of the enhancement. "We don't want to crowd out the private sector," Meddin said. The 31% of the pool made up of low-income loans carries an implicit guarantee from the central government.

The IFC holds a 21.25% share of Titularizadora. Other shareholders include Banco Davivienda (21.08%), Banco Colmena (21.08%), Banco Conavi (20.93%) and others.

While Ps135 billion (US$48 million) was sold in auction, the other Ps314 billion (US$112 million) was purchased by the three originating banks: Davivienda, Colmena and Granahorrar. Similarly, in the last two issues a disproportionate chunk went to the originators. Gradually, however, they have been filtering the paper back into the market. Having initially bought about 70%, originators now hold 45% of the first issue and 63% of the second.

To date, the Titularizadora has securitized about 12% of the country's residential mortgage pool, estimated at Ps13.5 trillion (US$4.83 billion). While CMBS is not currently on the radar, the Titularizadora has not ruled it out. "We're not closed off to the idea, but there still is a lot to do in the residential (area)" Brezing said.

The agency has been evaluating the potential for securitizing nonperforming loans, which comprise more than a fifth of the residential pool due largely to a crisis in the sector that erupted in 1997 (see ASR 3/24, p. 20). Work on that front slowed down ahead of the recent issue, but is expected to resume shortly, Brezing said.

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