The stage is set for a serious reunion of U.S. investors and Brazilian structured deals following a meager showing so far this year. For issuers, the invite reads loud and clear: come as you are. Due to monoline-supply scarcity and hungrier investors, the trend is to go unwrapped and Petrobras, for one, has apparently gotten the message. In a roadshow kicked off last week, the Brazilian oil giant was reportedly peddling an issue of no less than US$700 million, with an unwrapped tranche coming first and sized at around US$500 million.

"Nearly all the monolines are tapped out in Brazil and their pricing is getting expensive," said one lawyer familiar with Brazilian issuers. "There are several deals in the pipeline where the intention is to go unwrapped."

For some time originators fretted that investors would shun non-insured paper in an environment hostile to the new Brazilian president and slowly emerging from the Argentine headache. But confidence in the fledgling administration is up, Argentina is recovering and the thirst for unwrapped - but still investment grade - deals has only grown.

"Petrobras is going to be a good test of unwrapped deals," said one banker away from the deal. "This should be the beginning of a handful of unwrapped transactions over the next couple of months."

Two months ago, pockets of demand were deep enough to absorb a US$120 million securitization of future electronic money transfers from Banco do Brasil via Merrill Lynch and BdB Securities (see ASR 3/24, p.23). But in an indication that wallets are opening wider, the Petrobras deal is not only much bulkier, it may price tighter as well.

Citibank and Banco Bilbao Vizcaya Argentaria (BBVA) are bringing the structured Petrobras paper to market. Brazilian law firm Levy & Salomao and Clifford Chance are counsel for the issuer. Milbank, Tweed, Hadley & McCloy advised the leads.

At press time, unofficial spread talk on the unwrapped piece was 400 basis points, inside the 450 basis points paid by Banco de Brasil. While the Petrobras transaction has not yet been rated, the underlying credit standing of the PF Export Receivables Master Trust - reportedly being tapped for the current placement - is about the same as the Banco do Brasil transaction. Banco do Brasil was rated Baa1'/'BBB' by Moody's Investors Service and Standard & Poor's, whereas the underlying ratings for the Petrobras structure is Baa1'/'BBB-'/ BBB' from Moody's, S&P and Fitch Ratings, respectively. And Petrobras hardly has scarcity appeal. In fact, the issuer has floated three non-securitized dollar issues totaling US$900 million since January of 2001.

The last placement off the PF Trust was a four-tranche US$750 million deal enhanced by XL, MBIA and Ambac. The Trust is backed by current and future U.S. dollar receivables from export sales of fuel oil and bunker fuel to Citibank, in its role as offtaker and other specified customers of Petrobras. Most trapped sales are executed on a spot basis, but the company does have some contracts for fuel oil with electric utilities on the east coast of the United States. In the last placed transaction, customers accounting for roughly one-fourth of Petrobras' oil exports signed onto irrevocable payment instructions. Additional supports came from the standard reserve account funded with the following quarter's debt payment, an overcollateralization of US$150 million at closing, and stipulated floor of receivables cash flow to maximum debt service ratio of three to one.

As a government-controlled company, Petrobras does face the menace of state intervention. Ratings on the company are capped by the potential for meddling, especially the kind aimed at capturing a larger share

of Petrobras' export proceeds. Continued energy deregulation and reform however, indicate the government is moving is in the opposite direction, analysts said.

Petrobras leads Brazil's oil refining sector, with a virtual monopoly on the downstream sector. It is the largest company in Brazil, with assets of US$39 billion.

Nurturing their own deals in the pipeline, Banco Itau, Visanet and Banco Bradesco are no doubt gleaning what they can from the roadshow reception of Petrobras. Even closer in sector terms is iron producer CVRD, which by some accounts intends to shortly re-open an export securitization program that last tapped the market in October 2000.

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