S&P:Demand for Securitization Growing in Mexico

Source: Standard & Poor's CreditWire / Structured Finance

NEW YORK (Standard & Poor's) July 16, 2003--Demand for securitization is
escalating in Mexico, particularly for asset-backed securities (ABS), as
continuing low interest rates and an increasing sophistication for the product
develops further among investors, say credit analysts at Standard & Poor's
Structured Finance Ratings group.

"We have a fairly active pipeline in Mexico, in line with expectations at the
beginning of the year," said credit analyst Juan Pablo De Mollein, an associate
director in Standard & Poor's Latin America Structured Finance Ratings in New
York. "The end of the war in Iraq and the huge decrease in benchmark rates has
been bringing a large number of interested parties to the Mexican market,
especially from the asset-backed world."

Relatively new to the market are the growing inquiries for auto loan ABS
transactions and consumer lending securitizations, explained Mr. De Mollein,
who also noted that the market is showing interest for credit card ABS
transactions. "But credit cards entail additional legal and financial work,
which ultimately take more time to execute."

An important shift emerging in the Latin American structured market is that
domestic markets are gaining strength. This has been especially true in recent
years because domestic interest rates in some countries, particularly Mexico,
have been declining, which discourages the need for cross-border transactions.
Other reasons for the strengthening of domestic markets, explained Mr. De
Mollein, include the consolidation of institutional investors, resulting in a
more sophisticated local investor base. In addition, transaction costs for
domestic deals below $100 million are more affordable than cross-border
transactions and local securitization reduces currency risk.

In Mexico, the expansion of the domestic investor base is due largely to the
continued growth in the pool of funds under management by the privatized
pension system; this is adding the equivalent of nearly US$6 billion annually in
investable funds. Larger pension funds also serve to bolster local
securitization markets while discouraging cross-border transactions. "At the
end of 2002, we really began to see this shift from cross-border transactions to
domestic securitizations," said Mr. De Mollein. "We rated more domestic deals
than ever before." Domestic transactions in Mexico involve federal
tax-participation flows, partial credit guarantees, and construction bridge
loans.

Another recent phenomenon in Mexico is the increasing availability of currency
swaps. "In the past, swaps in Mexico were unheard of, mostly due to the high
volatility in the peso value against the U.S. dollar," explained credit analyst
Diane Audino, a director in Standard & Poor's Structured Finance Ratings group
in New York. "However, it is yet to be seen whether currency swaps can be used
for cross-border ABS deals since their exact cash flow is unpredictable."