When Aeropuertos Argentina examined its options for a debt
market debut in 2010, international interest in bonds out of
the country was limited. The sovereign was negotiating Paris
Club debt and attempting to swap bonds it had defaulted on nine
years earlier. Another corporate borrower, food products-maker
Arcor, had issued debt in November 2010. But it benefited from
having extensive international operations.
So AA2000 also turned to its comparative advantage: it
offered a bond backed by cash flows from airport usage fees,
which would be collected offshore.
The fact a high proportion of those revenues were in dollars
was among the selling points to investors, says Raúl
Francos, CFO of AA2000.
The $300 million 10 non-call five-year bond was five times
subscribed, and outperformed other Argentine credits in the
year ahead. Without securitizing the deal against these future
flows, raising cash would have been tough.
The deal characterizes one part of the history of structured
and secured financing in Latin America over the past quarter
century. Hampered by economic turmoil beyond their control,
companies have turned to secured financings to raise the cash
they would otherwise be denied.
In the late 1990s, PDVSA and Pemex used export receivables
to securitize borrowings. PDVSA's $1.8 billion trade in May
1998 not only stretched to a 30-year tenor, but it was rated
several notches above the sovereign. A few months later - and
after Russia had defaulted on its debt, sending emerging
markets into chaos - Pemex used a similar structure. Its $1.5
billion two tranche deal also found favor among the ratings
agencies, with a triple-A label.
Airlines and banks frequently securitized their
international receivables in the mid-late 1990s. Even phone
companies participated, securitizing payments due for long
"These were all dollar-based receivables, future flow
receivables," says Mike Morcom, head of Latin American agency
& trust sales at Citi. "And they were a mainstream for
Later, banks turned to future flow securitizations to raise
cash. A stand-out was Banco do Brasil's securitization of
future remittances from Brazilian workers in Japan, which it
sold in 2001. But simpler forms of diversified payment right
(DPR) securitizations - bonds backed by all the receivables
coming through the international settlement system - became a
popular funding strategy in the late 1990s and early 2000s.
DPR securitizations continue today, as do export receivable
securitizations. But as many Latin economies left behind the
turmoil of the 1990s - and as corporate borrowers gained a
stronger following among debt investors - the need to use
export receivable securitizations simply to raise cash
"In the early 2000s the new issuance of export deals began
to dry up as a lot of the corporate clients doing future flow
securitizations had graduated to unsecured dollar funding,"
says Morcom. "A company like Vale that used to do future flow
deals no longer had the need for that type of financing, as
they were able to go out unsecured on favorable terms. So it
didn't make as much sense."
A second phase of structured financing emerged as borrowers
looked for different benefits from the asset class. In Colombia
and Mexico, for example, lenders made heavy use of RMBS to
shift risk off their balance sheet and make space for more
Mexican mortgage-backed securities started being sold in
2003. Government-backed lender Infonavit, which sold its first
deal in 2004, is one of the few RMBS issuers present for most
of the market's existence.
The face of Mexico's securitization market has changed
sharply since Infonavit debuted. Non-bank lenders known as
sofoles surged in the years leading up to the US
subprime crisis, selling triple-A rated securitizations with
little overcollateralization but backed by monoline
When those insurers ran into problems at home in 2007,
spreads widened on the Mexican deals they wrapped.
Investors, spooked by the US subprime crisis as well as by
specific worries about the sofoles, stepped back.
Defaults forced the sofoles out of the issuance
markets in 2009, the same year that rising spreads also pushed
banks out. In the depths of the crisis, just Infonavit and its
peer Fovissste continued issuing mortgage securitizations in
"It was difficult, there was little demand and the rates
were high," says Jorge Márquez García, head of
the securitization program at Infonavit. "At the start of 2008
we were paying spreads of 100 to 150 basis points [over
Udibonos]. In 2009 they were at 250 basis points."
Yet the relentless growth of Mexico's pension funds, the
afores, is driving a return of the country's
securitization market. The afores buy around 40% to
45% of Infonavit paper. Private wealth and insurers are also
In June 2013, BBVA Bancomer sold a 4.2 billion Mexican
peso ($320 million) 20-year RMBS - the first such deal
by a bank since 2009. And demand for Infonavit's February bond
issue was seven times the 3 billion peso size. That
allowed it to squeeze pricing to 196 basis points - and hit its
lowest-ever yield of 3.3%.
"The pace of issuance growth has been lower than the pace of
asset growth at institutional investors," says Márquez.
"Assets under management at the institutional investors - asset
managers, pension funds, insurers - have grown a lot. There is
not enough attractive supply to meet the demand."
Growth of securitization markets across Latin America will
vary much by country. In Brazil, banks must allocate 65% of
their deposits to mortgage lending, making RMBS unnecessary.
"Potential changes to the rule could see the market expand
rapidly," says Ben Roger-Smith, director of structured finance
"There is a lot of potential in Brazil," says Katia Bouazza,
co-head of global capital markets, Americas, at HSBC. "A large
portion of the market, real estate, uses very little
securitization. And Brazil is going through structural changes.
The middle class is growing and that will increase demand for
loans and create a new demand for securitization, as financial
institutions may not be able to continue to finance all these
For others, the next step is to attract foreign investors to
the securitization markets.
International accounts are increasingly interested in
dabbling in Latin America's local currency bonds, particularly
in the more liquid markets like Mexico. But asset-backed
instruments offer even more hurdles for dollar-based investors
to participate than straight corporate bonds.
Not only do accounts need to hedge against moves in the
currency, they also have to factor in local interest rate
changes that could affect the flow of payments.
"You have that interest rate differential and FX
differential," says Morcom. "So all else being equal, you could
have zero asset losses and still lose money because of FX or
interest rate swings."
Nevertheless, it is on the agenda for some. In 2012
Colombian mortgage securitization specialist Titularizadora
Colombiana revived plans first conceived in 2007 for a
cross-border issue, although such a deal has yet to come to
For others, surging demand at home makes international
issuance less of a priority. "International investors are
interested in these deals, but we have enough demand in Mexico
that we don't need to issue internationally," says Infonavit's