Latin American Structured Finance Ratings Stable - Moody's
Dow Jones Newswires
NEW YORK -- Despite recent sovereign rating actions in Venezuela,
Brazil, Argentina, Colombia, and Mexico, ratings for structured finance
and energy-related project financings in those countries are "quite stable",
Moody's Investors Service said Tuesday.
The ratings on the securities highlight the benefits to investors of structural
protections that establish legal, political, or economic distance from the
sovereign, Moody's said in a press release.
Of 28 structured and energy-related project finance securities in these
countries, Moody's confirmed ratings of 14, placed four on review for
possible downgrade, and downgraded 10 by only one rating category.
In general, the securities fared better than their domiciles; since July of this
year, Moody's downgraded Venezuela twice (Ba2 to B1 and then to B2);
lowered the foreign currency rating of Brazil (B1 to B2); and placed
Argentina (Ba3), Colombia (Baa3), and Mexico (Ba2) on review for
possible downgrade.
Each of the 24 classes or series of securities whose rating exceeds the
applicable sovereign ceiling - including the 10 that were downgraded after
the sovereign rating actions - benefits from "features that reduce the
likelihood of the sovereign's interfering with their payment, even in the face
of a crisis that prevents the government from paying its own foreign
currency obligations," wrote Moody's senior analyst Diana Weaver.
The benefits of these features aren't confined to achieving an initial rating
that exceeds the sovereign ceiling, Weaver said. "A properly structured
transaction may also give investors long-term protection against sovereign
risk and volatile credit and rating conditions."
In some cases, the sovereign's ability to interfere with payments is
eliminated or greatly reduced due to the nature of the assets or receivables
that secures the payment.
These include receivables that are generated electronically outside the
sovereign's jurisdiction, such as international credit card voucher payments
and international telephone settlement payments, or that are generated by
export sales of products that have few other markets to which they could
be diverted.
In other cases, the sovereign is not willing to interfere with the transaction
for political or economic reasons, such as where an important treaty - say,
NAFTA - applies or where diversion of the product would be costly or
difficult, Moody's said.
Investors may also be protected from the effects of sovereign interference,
Weaver said, by various forms of credit enhancement and structural
protections such as reserve or liquidity funds or rapid amortization triggers.
Transactions with lesser degrees of independence from sovereign rating
actions were more susceptible to rating changes. For example, Moody's
placed three Mexican transactions and one Colombian transaction -
Conproca SA, Fideicomiso Huites, Imexsa Export Trust No. 96-1, and
Oil Purchase Company - on review for possible downgrade because they
are constrained by the sovereign ceiling and so will be affected by any
downward movement of Mexico's foreign currency debt rating.
The original ratings on these securities do not exceed the sovereign ceiling.
The ratings of three Venezuelan projects - Cerro Negro (Baa2),
Petrozuata (Baa2), and PDVSA Finance (A3) - were downgraded by one
rating category after the second recent downgrade of the foreign currency
debt rating of the Republic of Venezuela.
"The likelihood of a default on these notes remains low," said Moody's
Weaver, "But their structures do not eliminate entirely the possibility of
sovereign interference." She added that the increased risk of a sovereign
default, from Ba2 to B2, raises the odds and the severity of a payment
default on the securities.
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