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NEW YORK (S&P Global Ratings) Nov. 5, 2018--Structured finance issuance in Latin America decreased sharply during third-quarter 2018. Year-to-date issuance is down around 40% versus the first nine months of 2017, at $6.9 billion compared to $12.1 billion for the comparable period last year.
According to S&P Global Ratings' report published today, the challenging environment in Argentina and the uncertainties around the electoral cycle in Brazil and Mexico explain the drop in issuance across the region, along with currency depreciation in most economies. We now believe that issuance for the region will be in the $12-$15 billion range for the year, compared to our previous expectation of $19-$25 billion.
While the return of traditional securitization in Brazil across a wide range of asset classes could bump up the expected issuance, the potential impact is outweighed by the likelihood that most of Argentina's transportation public-private partnerships (PPPs) will close next year. However, we do not rule out that at least one PPP project could close before the end of the year, and during the fourth quarter, we will be paying close attention to the ongoing developments in Argentina.
We will also continue to focus on the performance of commercial assets in
Brazil as a result of the truckers' strike and its impact on trade receivables. In addition, we have observed increased interest in cross-border repacks backed by infrastructure-related certificates from frontier markets and in covered bonds.
Finally, we will monitor any statements by Mexico's new president regarding housing policies and the capital markets. As we discussed in our recent report, "Is AMLO's Government Plan The Answer To Mexico's Cross-Sector Success?," the president elect's administration has stated it contemplates the annual construction of one million homes. For this, government-related housing finance institutions would play a key role. With the rollout of this proposal, the use of securitization could be an essential funding source for mortgage origination growth among these entities, thus leading to the return of residential mortgage-backed securities in the Mexican market.
The full report, "Trending Assets: Latin American Structured Finance Issuance Stalls In Third-Quarter 2018," is available on RatingsDirect at www.capitaliq.com.
This report does not constitute a rating action.