Latin America - Ghosts of the past haunt new dawn
What alchemy can turn unloved Latin debt into investment grade gold? Securitization is one approach, if the borrower has foreign-currency receivables to back structured bond issues.
Another suggestion that has aroused the interest of many Latin corporates of late is the use of guarantees. Just as the World Bank guarantee for the republic of Argentina issue in October persuaded investment-grade buyers to put their money into Argentine risk, so bonds carrying guarantees in the form of political risk insurance could reassure investors and keep funding costs down.
Opic, the US government body that provides political risk insurance on project financings, has been at the forefront of this approach. Private insurers have also been scouting around the continent. Opic spent years studying ways to extend its work from the loan market into bonds. "We were aware that the capital markets were becoming a bigger part of financing," says Jamie Brache, regional manager in Opic's insurance department. "When the Asian crisis arrived we saw the need to accelerate the project."
The agency has provided insurance cover that have enabled a number of 144a registered bond deals to be completed for emerging-markets borrowers, usually as private placements.