LAT AM SUFFERS A TRICKY YEAR, DESPITE PEMEX AND PEDVSA


Times were hard for Latin American securitizations in 1999. The year started off with the market battered by the aftershocks from the Asian and Russian crises, saw Brazil devalue its currency and ended amidst speculations on Y2K. "It was a rough year," said Julio Torres vice-president at Chase Securities in New York.

Though Petroleos Mexicanos (Pemex) and Petroleos de Venezuela (PDVSA) launched billion dollar deals during the first two quarters of the year (Pemex sold $1 billion and PDVSA $1.2 billion), sources agreed that the deals were not a reflection of good market conditions. "Pemex and PDVSA are regular issuers of export-receivables deals," said

Torres. "They have securitization programs in place and very strong names, so the fact that they were in the market doesn't necessarily mean that conditions were good for other issuers."

Among the most noteworthy cross-border transactions of the year were three wrapped securitizations of ticket-receivables. Aerolineas Argentinas closed a $100 million club-deal through Citibank, while Merrill Lynch & Co. brought to market a $60 million issuance for Lan Chile and a $145 million joint offering for AeroMexico and Mexicana. "The deals for Lan Chile, Mexicana and AeroMexico were a very cost-efficient way to obtain funding," said Michael Lucente, director of Merrill Lynch's Latin American structured finance group.

Argentina's local securitization market was the most prolific domestic market in 1999, with issuers launching deals as soon as the presidential election of October was over. "In the last three months alone we rated a $50 million autoloan transaction, over $100 million in future flows and $195 million in deals backed by two provinces' co-participation taxes," said Jorge Solari, senior analyst with Standard & Poor's Ratings Services in Buenos Aires. "The vitality of the local market is the result of a developed pool of investors and an adequate legal and regulatory system."

As for new regulations, the big legal change in the region was the reform to Chile's restrictive 1994 securities law (Law 18.045), which limited securitizable assets to mortgages and mortgage bonds. Following the amendments it will be possible to securitize credit cards, telecommunications receivables, leases, car loans and infrastructure concessions.

With emerging market-related concerns looming large in investors' minds, 1999 turned into the year of political risk insurance. Zurich Re, the Overseas Private Investment Corp. (OPIC) and the Multilateral Investment Guarantee Agency (MIGA) structured political risk insurance policies for the fixed income market.

Designed to protect emerging market bonds from transfer and convertibility risks, the policies were widely publicized as a way to pierce the sovereign ceiling and prompted companies such as Telefonica del Peru and Femsa Cerveza to pitch deals relying on political risk insurance.

Yet insurance-backed transactions did not fare as well as expected. Telefonica's transaction was pulled from the market and Banco Hipotecario (BHN), Argentina's biggest issuer of mortgage-backed securities, decided to delay an international deal backed by political insurance until next year, amid different market opinions about the value of such policies.

Meanwhile, Latin American issuers in search of long-term financing found a new funding source in 1999, via securitizations of "B" loans from the Inter-American Development Bank (IDB). Because of the IDB's preferred creditor status the rating on an IDB transaction is not constrained by the sovereign foreign currency rating.

The structure was used for a groundbreaking $176 million securitization for Argentina's Transportadora de Gas del Sur (TGS) in the first quarter and this was followed by a $120 million deal for Aguas Argentinas S.A. in the second quarter and an additional $75 million tranche for TGS in the last quarter of 1999.

In general, market players refused to be downcast following a frustrating year. "Investors' perception of the Latin markets are improving and we expect to see a steady deal-flow in the first quarter next year," said a buy-side source.