A Ukrainian bank has launched its - and the country's - second existing asset deal. Regardless of whether lead arranger UBS will hit up institutional investors or underwrite until sunnier times bring tighter market pricing, the transaction will be a step forward for an emerging market country that's an infant in securitization.
Meanwhile, across the ocean in Mexico, an emerging market that's a lot more grown up is finding its steps into ABS are more fraught. Trouble in real estate deals - not of the subprime kind, mind you, but still trouble - has led to yet higher spreads and a more muscular role of state agency Sociedad Hipotecaria Federal.
Privatbank, a Ukrainian originator, plans to raise $104 million in a two-tranche auto loan deal that carries a political risk insurance (PRI) policy from Steadfast, a unit of Zurich Insurance Co. That's a follow-up from a $180 million RMBS it issued last year.
The PRI helped the deal garner a BBB-' from Fitch Ratings and Baa3' from Moody's Investors Service. In a country like the Ukraine, where a stable of originators are in the double-B category and the country's foreign currency ceiling is below investment grade, PRI works as a way to push an existing asset deal to the triple-B level by mitigating transfer and convertibility risk and expropriation risk.
The deal is the first revolver from the country, and the first deal to have a servicing agreement governed by local law. There's a buzz that the structure's back-up servicer Ukreximbank might be interested in securitizing assets of its own, while peer Raiffeisen Bank Aval is also heard to be eying ABS funding.
While the Ukraine is just getting its feet wet, the far more developed market in Mexico is finding that certain existing assets aren't as hassle-free as they used to be. The construction loan and mortgage classes are facing less attractive pricing terms - over and above the tighter liquidity that's bedeviling issuers in general - as domestic institutional investors aren't as confident in the quality of these assets.
A month ago, Fitch warned of steeper risks in construction loans, with slower amortizations and indications that the huge housing deficit figures that players had been bandying about lacked nuance. We haven't seen serious downgrade action from any of the agencies, but last week the market spoke, and they weren't words of encouragement. Credito Inmobiliario priced a five-year, $500 million senior tranche at 160 basis points over a 28-day TIIE. This was a good 40 basis points over a comparable six-year deal in March from Su Casita, which didn't fare well either, having not received a single bid during the auction hour, forcing the securities exchange to extend the bidding time. Late last year, paper in the asset class was going for 100 basis points over. It's true that spreads have come out in general, but this sector's underperforming, along with RMBS.
Hearing the noise, Mexican politicians have sprung into action. At the end of April, the legislature's lower chamber approved an extension of the ability of the Sociedad Hipotecaria Federal to offer direct funding to originators beyond 2009 - a change ASR had predicted as a possibility in mid-March (3/17/08). Previously, the SHF - which had been phasing its once primary role as a bank for lenders - was going to provide only regulatory supervision, insurance and guarantees after 09. There were already reports that the SHF was participating in bond auctions. Now, with its renewed mandate to fund, we'll see where pricing goes.
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