The three largest U.S. rating agencies are poised to bring trustee rankings into Latin America, furthering a regional push initiated in Mexico earlier this year. Fitch Ratings, Moody’s Investors Service and Standard & Poor’s are each at various stages of launching the rankings in Argentina, and other countries such as Brazil and Chile could be soon to follow.
Fitch’s trustee ranking method is currently awaiting approval by the Comision Nacional de Valores, or CNV, Argentina’s securities regulator, said Eduardo D’Orazio, director with Fitch in Argentina. D’Orazio said there is no way to tell when the system will be approved, but said Fitch will likely bring the methodology to Brazil and Chile next.
D’Orazio noted that Fitch has always evaluated the quality of trustees, but the difference is that now the rankings will be formalized and the method will be open to the public. In particular, Fitch’s evaluations will focus on how the trustee manages the documentation of the assets in the trust, how closely the trustee follows regulations, how the trustee responds to triggers and how they have handled previous deals.
S&P is also in the process of bringing its trustee ranking system to Argentina and should put out its first ranking before the end of the year, said Juan De Mollein, director in Latin American Emerging Markets with S&P. De Mollein said the ranking criteria will be similar to those used to evaluate Mexican trustees, of which S&P has ranked one. De Mollein also said it is likely that S&P will use the trustee evaluations in Brazil and Chile, where there is demand for those rankings.
S&P’s evaluations, similar to Fitch’s, are based on operational assessments of a trustee’s capability to administer a transaction. S&P will look at the performance of specific trustee obligations such as calculation of interest rate and debt service, control of servicer reps and warranties and servicer replacement, calculation of floors, triggers and prepayments and determination and reporting of accelerating events.
De Mollein said the decision to bring the rankings into Argentina was “because of the demand for more information coming from the institutional investor community,” and because of interest generated after S&P launched its Mexican trustee rankings.
In Mexico, the role of trustee is split into two distinct roles, that of the trustee and that of the common representative, and S&P ranks them both. S&P has so far ranked one trustee and two common representatives in Mexico.
Maria Muller, vice president and senior credit officer with Moody’s, said her agency is “planning to do trustee ratings in the Latin American region,” and sees interest for those ratings in Argentina. Moody’s launched its MxTQ, or Mexican trustee quality ratings earlier this year, but has yet to release a rating in the sector.
Argentina has approximately 10 active trustees, with only five of those as significant players in the trustee market. Deutsche Bank, Equity Trust (formerly ABN AMRO), Banco Patagonia, Banco de Valores and Banco Galicia cover 90% of the ABS deals in Argentina, the majority of which are short-duration, consumer credit card deals. All three agencies rank trustees on a five level scale.
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