Cargas en la cola en maniobras simétricas

Structured finance can be defined as a form of financial intermediation based upon securitization technology.58 In its simplest form, it is a process where assets are pooled and transferred to a third party (commonly referred to as special purpose vehicle

57 _{As discussed in Appendix 3, this seems to be the result of institutional incentives as NAFIN is a second-}

tier bank that is evaluated on the basis of its volume of loan disbursements.

58 _{Accurately defining structured finance is quite difficult, as even among market participants there is no}

or SPV), which in turn issues securities backed by this asset pool. Typically, several classes of securities (called tranches) with distinct risk-return profiles are issued.59 Innovations abound in this market and several types of assets have been included in the collateral pool, ranging from cash instruments (e.g., mortgages, loans, bonds, credit card receivables) to synthetic exposures (e.g., credit default swaps). The structured finance market in developed countries has experienced significant growth over the last years (see BIS, 2005b). In the case of developing countries, although the volume of transactions has also increased significantly, structured finance markets are still small and underdeveloped.60

Structured finance transactions involve a number of different participants. These typically include: the originator, who originates the underlying assets in the course of its regular business activities or purchases them in the market; the arranger, who sets up the structure and markets the securities; the servicer, who collects payments and tracks the performance of the asset pool; the trustee, who oversees cash distributions to investors and monitors compliance with deal documentation; and, in some deals, financial guarantors, who provide guarantees for certain tranches.

FIRA (Fideicomisos Instituidos en Relación con la Agricultura, Agricultural Related Trust Funds), a Mexican development-oriented financial institution that provides second-tier funding to the agricultural sector, has recently promoted several structured finance transactions.61 One of these transactions was designed to provide working capital financing to shrimp producers in collaboration with a large shrimp distributor called Ocean Garden.62 The general structure can be summarized as follows. Shrimp producers sign supply contracts with Ocean Garden to deliver a certain amount of shrimp at a future date. Ocean Garden pays them a portion of these contracts in advance to provide them with working capital financing and subsequently transfers these credit rights to an SPV, which sells participations to investors. Ocean Garden not only acts as originator but also as servicer, being responsible for transferring payments to the trust fund once the producers deliver their production. To help align the incentives of the different industry participants and reduce adverse selection problems, shrimp producers, shrimp feed suppliers, and Ocean Garden provide liquid guarantees to cover the first credit losses. Shrimp producers and feed suppliers provide guarantees that cover the credit losses of each individual working capital loan up to 24 percent, whereas Ocean Garden provides a general guarantee that covers up to 25 percent of the total asset pool. Once these guarantees are exhausted, investors start facing credit losses.63 FIRA not only acts as an

59 _{Some authors (see, for example, Alles, 2001, and BIS, 2005b) differentiate between securitization (which}

only involves the pooling and transfer of assets to a third party and subsequent issuance of securities) and structured financing (which also involves the creation of different classes of securities). In keeping with common usage, we use the term structured finance to refer to both types of instruments.

60 _{See Meddin (2004) for an overview of structured finance in emerging markets and the role it may play in}

fostering capital market development.

61 _{See Appendix 4 for a more detailed description of FIRA’s structured finance operations.}

62 _{Ocean Garden is one of the main exporters of Mexican shrimp to the U.S. It handles approximately one}

quarter of Mexico’s shrimp production and has annual sales of about 250 million U.S. dollars. The firm was owned by the Mexican government and was recently privatized.

63 _{This happens when credit losses exceed approximately 32 percent of the total asset pool, see Appendix 4}

arranger in this transaction, but also as a financial guarantor providing guarantees to partially cover credit losses once the liquid guarantees from industry participants are exhausted. FIRA charges a fee for its services as arranger and also for the provision of the guarantees. FIRA requires all investors participating in this scheme, which are financial institutions, to use its second tier lending to purchase the securities issued by the SPV.

This structured finance transaction helps to solve principal-agent problems by outsourcing the screening of small producers to a large commercial firm that has an informational advantage relative to financial intermediaries. A significant problem in this type of transaction is that the originator may have incentives to include lower quality assets in the pool. Anticipating this possibility, investors who have less information about the quality of the assets may not be willing to invest or may ask for a premium to compensate them. In this particular transaction, the adverse selection problem is ameliorated by the fact that, since Ocean Garden signs supply agreements with the producers, it depends on the fulfillment of these agreements for its future sales and therefore has incentives to adequately screen and monitor producers. The adverse selection problem is further reduced by the fact that Ocean Garden provides guarantees to cover the initial credit losses. The pooling of working capital loans to several producers reduces transaction costs and also helps financial institutions to diversify their risk exposure, as they do not face the idiosyncratic risk of an individual producer. Also, financial institutions do not face Ocean Garden’s credit risk, as the supply contracts are removed from its balance sheet and their ownership is transferred to the SPV. This means that if Ocean Garden files for bankruptcy, the assets in the pool do not come under court jurisdiction. FIRA has been successful in using similar structured finance transactions to improve access to credit in several sectors (including wheat, corn, and sorghum production) by using large commercial firms as originators and the loans provided through this type of transactions now account for 5 percent of its total portfolio. See Appendix 4 for more details on FIRA’s experience with structured finance.