Mexican interest rates had been zigzagging upward since the beginning of the year with talk of a U.S.-led strike against Iraq. But last week was exceptionally ugly. The quickening beat of war drums in Washington shot rates to the sky and bankers scattered for cover. Yet one deal managed to land on firm ground, though the hostile climate obliterated chances for an upsize. BBVA Bancomer and Inversora Bursatil brought forth a Ps500 million (US$45 million) bond backed by loans that BBVA extended to Sears Roebuck de Mexico and Procelanite. Both are subsidiaries of Grupo Carso, a giant industrial-retail conglomerate. Structured to match the terms of the loans, the three-year deal came at 140 basis points over three-month Cetes treasurys. Standard & Poor's and Fitch Ratings assigned the transaction AA' on the national scale.

The transaction is a slice of a Ps5 billion (US$454 million) program for Grupo Carso, which has retained Ritch, Heather, and Mueller as legal counsel.

"There was intense volatility due to the geopolitical scenario," said a source close to the deal. "That hit the [Carso] deal hard." In the weekly treasury auction Oct. 25, the yield on three-month Cetes treasurys hit 9.32%, the steepest rate since October 2001 and 97 basis points on top of the previous week.

Unwilling to push their luck, the placement banks capped the deal at Ps500 million (US$45 million), though orders came in for an additional Ps400 million (US$36 million) at higher rates. "The book was a tight fit," a source said. "Carso wasn't going for an upsize at these rates."

The short tenor attracted investment funds, which took over 80% of the issue. Retail banking grabbed another piece. Pension funds stayed away since they normally eschew anything with an average weighted life of under five years, a source said.

Pricing came at 160 basis points inside Mexico's last double-A securitization. In early February, the State of Mexico issued a Ps331 million (US$30 million), five-year at 300 basis points over Cetes. That deal also went to unconventional investors, not so much because of the tenor but because it carried only a single rating from Fitch (see ASR 2/17, p.1). Apart from that difference between the deals, the Carso program launched in July so it enjoyed a performance record against the untested structure of the State of Mexico program. In addition, Carso has a stronger market reputation than the subnational.

Grupo Carso's program debuted with a Ps800-million (US$73 million) securitization of BBVA loans to manufacturing subsidiary Nacobre last July. That transaction priced at 125 basis points over six-month Cetes. Loans under the program carry a guarantee from the holding company, which is rated double-A on the national scale.

The program keeps the loans to its beneficiaries off BBVA's balance sheet. Sources close to the latest transaction say the program is scheduled to close within a year. That will depend largely on Mexican investors' concern with potential war in Iraq. A conflict wouldn't necessarily spell disaster either. Mexico's close ties to the U.S. economy and financial markets are inescapable, but the country is also an oil exporter. Higher energy prices can offset trouble from the north.

Other peso deals

in the wings

Elsewhere in the Mexican market, housing finance company Credito y Casa is bringing forward a securitization of construction bridge loans and of loans for purchasing land. IXE Casa de Bolsa is the underwriter. A prospectus registered with Mexican regulators puts the size of a program at Ps1 billion (US$91 million), which market sources say will be split into two even placements. Thanks to enhancements totaling 19.2%, the deal won triple-A ratings from Standard & Poor's and Moody's Investor Service, which have yet to release their respective opinions. Romo, Pailles y Guzman is legal counsel.

The enhancements include a 5.68% overcollateralization, a 6.32% guarantee by Sociedad Hipotecario Federal (SHF), and a 7.2% guarantee by Dutch development bank FMO. The SHF introduced its guarantee to the market in a Ps500 million (US$45 million) issue for Metrofinanciera, which, like Credito y Casa, is a SOFOL, as local housing finance companies are known. Also handled by IXE, Metrofinanciera priced at 145 basis points over six-month Cetes back in October. Another Ps500 million is slated for placement shortly.

The FMO, for its part, is heard sniffing around for other transactions to back in the Mexican market.

Meanwhile, regulators have been stalling a routine securitization of federal participations revenues for the state of Guerrero, said a source familiar with deal. Initially timed for the end of February, the tentative date for issuance is set at March 11. One source said bureaucratic requests for non-financial data on the state, such as its demographics, have delayed issuance.

It seems the fact that all three international ratings agencies rated the deal has not greased the regulatory wheels. Structured by Interacciones Casa de Bolsa, the transaction is sized at Ps1.5 billion (US$136 million) and is rated double-A plus on the national scale. Valencia del Toro is legal counsel. Guerrero received Ps4.2 billion (US$381 million) in federal participation revenues during 2002. The state's high level of dependence on the flows is considered a risk factor.

Guerrero has a long coastline, punctuated by the bustling resort city of Acapulco.

Copyright 2003 Thomson Media Inc. All Rights Reserved.

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