S&P Global Ratings expects Latin America structured finance issuance to reach about US$35.0 billion in 2025, up from about US$31.6 billion as of November 2024 (see chart 1). Our estimates consider the main markets we follow: Argentina, Brazil, Mexico, and the cross-border market.

We forecast the region's annual GDP growth will average slightly over 2% in the near term, which is lower than that for most other emerging markets (see table). The modest expected growth incorporates uncertainties driven by the potential impact of tighter financial conditions and a stronger U.S. dollar. Once the next U.S. administration takes office, potential policy changes may weigh on emerging market growth and heighten credit vulnerabilities. The likely increase in trade protectionist policies among major economies would hurt GDP growth in most emerging markets in the near term. However, the magnitude of the impact will depend on the policy details, which will become clearer in the coming months.

We also expect the region to see single-digit structured finance issuance growth (about 5%, based on recent issuance figures). The primary drivers for growth remain funding needs for corporate issuers in Brazil amid a liquid market, the gap in financing for non-bank financials that serve consumers and small and medium size enterprises (SMEs), and the region's significant infrastructure needs.

Chart 1

Credit and collateral performance should remain stable in Latin America, despite macroeconomic uncertainties.  Collateral performance and credit stability have proven resilient in the recent years, and we expect this to continue across assets classes in the region. Our ratings are mostly in the higher end of the national scale markets that we serve, and repackaged securities represent the predominant asset class. We also continue to observe investor interest in future flows, repacks, diversified payment rights and data centers in the cross-border market.

Brazil, the most active market in the region, continues to grow in size and complexity (see chart 2). Repackaged securities are still the most active asset class in the country, followed by trade receivables and consumer credit. Our 2025 forecast for Brazil's macroeconomic landscape is marked by higher level of uncertainties and escalating risks, though we expect rating stability for transactions we rate.

Issuance remains subdued in Mexico, but interest rates are declining, which should favor new issuance. Equipment asset-backed securities (ABS) is the most active asset class in the Mexican market, though investor interest in collateralized loan obligations (CLOs) and commercial mortgage-backed securities (CMBS) remains high and is beginning to materialize.

Argentina continues to face challenging market conditions, despite some improvements, and low issuance levels. However, the drop in inflation and interest rates and the increased use of digital platforms are trends that could favor structured finance issuance.

Chart 2

Brazil: Navigating Emerging Risks In The Region's Largest Market

Brazil's capital markets and private credit continue to grow in size and complexity.  We forecast Brazil's macroeconomic challenges will increase this year, given the uncertainties surrounding the country's fiscal position, higher interest rates and inflation levels, slowdown in economic growth, and depreciating currency. These factors will likely impose greater financial constraints on leveraged companies and hurt household spending and consumers' ability to meet their financial obligations.

Repacked securities remain the most active asset class in Brazil. These assets comprise corporate-backed agribusiness receivables certificates (CRAs) and mortgage-backed securities (CRIs), most of which are single obligor's exposure assets and, therefore, reflect the obligor's credit quality. Notably, receivables investment funds (FIDCs) issuance volume grew significantly over the past 12 months, and we expect this momentum to continue in 2025. Interest on complex transactions has also increased due to future flows backed by export contracts, providing a sizable off-balance funding for the underlying obligor.

We believe the FIDC issuances expansion is primarily due to high liquidity volumes, as well as the market's growing familiarity with the product and favorable regulatory changes, such as CVM Resolution 175. These developments have attracted investors seeking higher yields, since elevated market liquidity has compressed spreads in traditional high-grade operations. As a result, private credit fund managers are increasing their allocations in FIDCs, highlighting their growing appeal.

However, this very liquid market introduces risks. Intense competition for assets, driven by strong demand for higher yields, is accelerating the origination of new operations, often at a pace that may not fully address or appropriately price underlying risks. These conditions could lead to distorted credit pricing, flawed structuring, and heightened conflicts of interest, particularly in single-seller originations or club deals. Furthermore, the rapid growth of new fund managers and servicers in structured transactions--especially in asset classes where their expertise is limited--raises the potential for isolated credit events.

Nonetheless, the portfolios we analyze continue to perform within our base-case scenarios despite these challenges. In addition, the current credit protections available to the senior tranches of FIDC issuances, which include subordination, overcollateralization, and excess spread, have proven robust and sufficient to uphold these tranches' credit quality over the past two years.

Ratings performance should remain stable, though conditions are more challenging amid higher interest rates and inflation pressuring household indebtedness.  Brazil's high levels of household indebtedness remain a significant consideration for consumer credit portfolios, even as improvements in unemployment and access to renegotiation programs have offered some relief. While delinquency rates in unsecured consumer credit have stabilized, rising interest rates and shifts in household expenditure patterns, such as increased spending on online gambling, pose new risks. These factors could amplify pressure on payment capacity and require close oversight.

Traditional FIDC issuances, especially those tied to payroll, student, and auto loans, are likely to remain active market segments. Regulatory changes have encouraged banks to securitize their credit portfolios, potentially shaping a strong trend into 2025. However, challenges persist, particularly for payroll-loan-backed structures, where interest rate increases have outpaced adjustments to borrowing caps. Still, this asset class has gained prominence in recent years with new structures, such as the FGTS Anniversary Withdrawal. The growing number of new originators in this space also highlights the importance of governance, origination capacity, and asset quality as key considerations for maintaining credit integrity.

Most rated consumer credit operations have macroeconomic risk adjustments already in place, which we expect to sustain amid the prevailing market conditions for 2025.

Macroconditions will likely pressure originator's capital structure, posing higher operational risks for single-seller transactions.  Single-seller transactions remain under pressure from the challenging macroeconomic environment. While portfolio performance has stayed within expectations, these structures face heightened operational risks due to persistently high interest rates, increased competition, and reduced access to short-term credit for refinancing. These pressures are particularly acute for originators with preexisting liquidity constraints or burdensome capital structures, many of which have faced judicial recovery or undergone debt restructuring. Such financial stress can disrupt originators' operational continuity, potentially affecting the servicing and performance of receivables portfolios ceded to FIDCs.

Multiseller FIDCs have shown resilience, maintaining performance within expected delinquency levels, even under challenging macroeconomic conditions. Portfolio diversification, active credit management, and strategies such as obligor enforcement and receivable substitution have been key to this stability, despite recent volatility linked to the record high judicial recoveries fillings and SME credit pressures.

Resilient performance supports the credit quality of commercial properties.  Shopping centers continue to exhibit relatively stable performance for prime properties and more attractive developments, while less appealing properties have shown more volatile numbers, including persistently high vacancy and/or net default rates. The increase in interest rates and inflationary pressure on household budgets may pose additional risks for this asset type.

Vacancy rates for logistics assets remain historically low and, in our view, are capable of absorbing inflation adjustments, and the asset class likely won't face any pressures in the short term. In the corporate space, sector performance is quite heterogeneous, with prime properties maintaining low vacancy rates and base rental prices increasing. We note a rising trend of companies returning to the office after adopting hybrid work policies, sustaining the demand growth for office rental.

Home equity portfolios performance remain stable despite high prepayment rates, elevated interest rates, and low LTV ratios.  We believe the increase in the benchmark interest rate will pressure the cost of funding, while high inflation levels will continue to weigh on the financial capacity of the already highly leveraged Brazilian households. The home equity product has gained traction in recent years, primarily as an alternative financing method for SME entrepreneurs who face limitations in accessing traditional financing sources. Although these operations may have significantly higher cost than traditional real estate financing, they typically have shorter terms and greater collateral coverage (loan-to-value [LTV] ratio) of generally well below 60%.

Mexico: Issuance Poised For Growth Amid Stabilized Performance Lower Interest Rates

Mexico's structured finance issuance activity could increase in 2025 amid stabilized macroeconomic performance and improved performance in the non-bank financial sector. Furthermore, the country's central bank has begun to cut interest rates. We expect the reference rate decreasing to 8.0% by year-end 2025 from the current 10.0%, which could further boost issuance activity this year.

New deal issuance volume rose 40% to approximately US$752.3 million in 2024 relative to the previous year (see chart 3). However, despite this significant recovery, volumes remain low compared with the 2018 and 2019 pre-COVID-19 pandemic new issuance volumes, which averaged over US$1.3 billion each year. Investors remain cautious due to the uncertainty surrounding the economic and political environment.

Equipment ABS, from mainly non-bank financial institutions, continued to dominate issuance in 2024 (at 40% of total issuance) followed by consumer ABS (30%). On the other hand, there have been no residential mortgage-backed securities (RMBS) issuances since 2021, and we expect low RMBS issuance volume during the current administration because INFONAVIT and FOVISSSTE, which historically are the predominant issuers in this market, are not expected to tap the markets.

Chart 3

The main asset classes should see stable performance and credit stability in 2025.  We don't expect significant rating shifts this year, mainly due to the observed performance of the collateral backing equipment ABS and RMBS transactions. Both sectors continue to present relatively stable loss levels combined with robust credit enhancement, supporting their current rating levels.

The transactions we rate demonstrated stable performance in 2024 and the overall credit quality has consistently improved since the COVID-19 pandemic. Notably, there has been only one default (from a legacy RMBS issuance) in the past three years, and S&P Global Ratings has conducted more upgrades than downgrades over the past 12 months.

The Mexican structured finance market still has significant potential despite the challenging macroeconomic landscape due to the significant financing needs and the growing opportunities in the market. These include:

• The demand for financing in the industrial, retail, and office sectors, coupled with a growing real estate market, is creating opportunities for CMBS transactions, primarily in the northern region.
• There is also potential for cross-border transactions, which encompass various financial assets, properties, future flows, remittances, etc. However, foreign exchange exposure and a potential sovereign rating ceiling could be roadblocks.
• Demand for data center data storage and processing capabilities has been growing globally, and Mexico is no exception, translating to an opportunity for structured finance transactions in that sector.
• Repackaged securities are widely used in Latin America to finance mainly infrastructure and related projects. With the Mexican government's significant need for infrastructure funding, we believe repackaged securities are a potential alternative to tap the international markets.

Argentina: Improving Conditions Could Favor New Issuance

We expect new issuance volume to remain flat in 2025 relative to 2024, primarily due to the still challenging macroeconomic conditions. However, Argentina's economic landscape has been improving and this could be favorable for new issuance activity. As in previous years, we foresee issuance activity remaining concentrated among a few frequent issuers, mainly in the consumer segment, particularly ABS backed by consumer loans and credit cards. We expect that credit stability will persist in the ABS transactions we rate, with observed defaults within our expected loss levels and increasing credit enhancement metrics as the deals amortize.

The Central Bank of Argentina (BCRA) is expected to continue with a flexible monetary policy, adjusting interest rates according to economic needs. With inflation still high, but in the process of stabilizing, BCRA could choose to keep rates at relatively low levels to promote economic growth and investment. However, any significant change in inflationary conditions could lead to rate adjustments to control inflation.

Conversely, the resurgence of mortgage lending and the possibility of structuring mortgage trusts add an additional dimension of potential growth. However, inflation levels, coupled with lowered income and low household savings rate, may limit the use of mortgage loan securitization. We expect the performance of outstanding loans, which are all denominated in purchasing value units (UVAs), to remain relatively stable with relatively low delinquency levels, which have historically been below 2%.

Digitalization could also be a driver of change in the Argentine financial trust market as fintech platforms continue to gain traction, offering more efficient and transparent solutions for issuers and investors.

Cross-Border Transactions Will Continue To Attend Bespoke Financing Needs

In 2025, we expect a continued emphasis on tailor-made transactions in cross-border issuance, reflecting evolving market dynamics and investor preferences. Repackaged securities funding infrastructure projects will likely maintain their popularity, mainly driven by Latin America's significant infrastructure needs. The credit quality of the underlying assets supporting these repackaged securities will be the key factor in assessing their viability and attractiveness in the market.

We continue to observe increasing investor interest in securitizations of international wire transfers, typically from export-related financing, foreign direct investment, and remittances from citizens working abroad who send money back home. Domestic banks have used this type of securitization as part of their foreign currency funding strategy, based on observed issuance activity, and we expect this trend to persist in 2025.

Over the next 12 months, we do not expect major performance changes in the cross-border structured finance transactions we rate. These transactions have been making debt service payments according to schedule and the underlying assets have been performing as expected. However, most are also dependent on the rating(s) on the relevant sovereign or government-related entities (GREs).