Structured Finance in Colombia: Experience and Lessons

Abstract

Asset-backed-securities (ABS) in Colombia have grown significantly in the last five years, both in the amount issued in the market and in outstanding value. This article analyzes the main rating criteria that Investor Services uses in the rating of ABS issues and the lessons we have learned from our experience. In Latin America, as in other emerging markets, the first stage of structured finance has involved cross-border financings in foreign currencies, mainly U.S. dollars, that mitigate direct sovereign risk by extracting debt service payments from export receivables generating future flows of foreign currency. The second stage of structured finance involves securitization of existing assets in local currencies in the domestic capital markets. This second form is the focus of this article because it is most relevant for financings rated by BRC. The article summarizes the most important structured finance cases rated by BRC, discusses four successful transactions, and offers some lessons learned from BRC’s experience with structured finance ratings.