Securitizations from Latin America, particularly Brazil, should grow in number next year, according to London asset-backed bankers and analysts. Aside from six bank deals, the region saw only two corporate securitizations this year: Petrobras, Brazil's blue-chip oil company, and PDVSA Finance, a securitization vehicle launched by Venezuela's state-owned oil company PDVSA. Nancy Shue, structured finance analyst at Standard & Poor's in New York, predicts that strong exporting companies will likely seek structured deals featuring political risk insurance in 2002, as the international debt capital markets remain firmly shut to LatAm corporates--at least for plain vanilla bonds. Already, Companhia Brasileira de Bebidas (CBB) has announced its intention to launch a $500 million securitization featuring a guarantee by its parent company Companhia de Bebidas das Americas and carrying political risk insurance. CBB will use some of the proceeds to refinance existing debt and other companies will likely follow suit as the need for more creative financing methods increases.
Political risk insurance, which was used this year by Petrobras, will likely be a key factor in helping get deals done in the region this year, concur analysts and bankers. Political risk insurance policies mitigate sovereign interference risk, thereby protecting the issuer in the event of a sovereign downgrade and usually provide coverage for debt service for a pre-determined amount of time. For example, CBB's political risk insurance provides for one year of debt service.
An emerging markets debt capital markets banker who focuses on Latin America says exporters will likely pursue the securitization route. He adds that many of Brazil's banks have securitized cash flows this year, for example, Banco Itau, Banco do Brasil and BNDES. Shue adds that Mexican provinces may begin to securitize taxes owed to them by the federal government, thanks to a new law passed there this year permitting them to do so.