ABCP: Deutsche sells first Latin American conduit


Chloe Hayward
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Brigitte Posch, Deutsche Bank

"Mexico has a very established structured finance industry and there are a number of deals getting done in the asset-backed lending market"
Brigitte Posch, Deutsche Bank

ABCP conduits suffered a reputational battering as a result of last summer’s liquidity freeze in the commercial paper market. However, if events in Mexico are anything to go by the concept has survived. In late February, Deutsche Bank was poised to launch the first Latin American ABCP conduit in Mexico, a diversified multi-seller vehicle dubbed Aztlan.

Named after the mythical place of origin of the Aztec people, Aztlan has been set up to invest in various peso-denominated receivable pools, including trade receivables, future flow receivables, mortgage loans and consumer loans. Crucially, given the problems that this and the structured investment vehicle sector have wrestled with over the past six months, the conduit is supported by a 100% liquidity facility from Deutsche Bank. "I think that one of the most compelling features about this structure, unlike an extendible programme or a SIV programme, is that this conduit is afforded a traditional liquidity facility," says Alberto Santos, a senior director at Fitch Ratings. "The lack of liquidity facilities was at the forefront of the funding issues experienced during the second half of 2007. The structural features within this conduit, including the liquidity agreement, are expected to mitigate market disruption or timing risk for this conduit. Typically, liquidity facilities can be used to pay maturing commercial paper or to cover timing mismatch between assets and liabilities of a multi-seller asset-backed commercial paper conduit."

The structure was subject to months of scrutiny and received approval from Mexican banking regulators, including the Comisión Nacional Bancaria y de valores, in November. The initial fund is expected to be $2 billion but there are high hopes that this is just the start and that it will receive strong investor interest.

"Mexico has a very established structured finance industry and there are a number of deals getting done in the asset-backed lending market," says Brigitte Posch, managing director and head of Latin American securitization at Deutsche Bank. "When you look at Mexico, there is a legal framework in place to support this structure, a tried and tested securitization market and a vibrant short-term CP market – with these three factors it makes sense to combine them and this was a good opportunity to do business in Mexico."


Mexico’s structured finance market is the largest in Latin America – accounting for 43% of activity in the entire region in 2007. The market is dominated by RMBS, with 21 transactions worth $3.1 billion inked last year. And there is solid domestic appetite for this paper: $2.7 billion of that total was placed with local investors. The sponsors must be hoping that this appetite can be tapped for ABCP. "The challenge of any vehicle, whether in the US or Mexico, is to have a structure that is as clean and transparent as possible, and so if there is any risk component then the investor will be able to understand it," says a banker.