Debuting in a market long tapped by its peers, Brazil's Banco Santander and related entity Banco do Estado de Sao Paulo (Banespa) issued a $400 million, seven-year deal last week backed by current and future diversified payment rights (DPRs). Led by Merrill Lynch, the transaction priced at 5.73%, yielding a spread of 235 basis points over five-year Treasurys, according to a source close to the deal. Moody's Investors Service, Standard & Poor's, and Fitch Ratings rated the deal Baa1'/'BBB'/'BBB+', respectively. Pricing was on Sept. 13; settlement is set for Sept. 20.

For the ratings category and asset type, both the yield and spread were unusually compressed, hitting the tightest ever for financial future flows out of Brazil, according to one source. Indeed, the deal priced inside every future flows deal from the country tracked by ASR over the last two years. "There's an aggressive bid right now in the U.S. market," said a source on the transaction, "The bank has a good reputation and took advantage of conditions."

Heavy demand from one large lead account was heard pressuring the pricing. A couple of large emerging-market investors in the U.S. said the transaction had not entered their radar, suggesting that Merrill had focused on a smaller group.

Legal counsel for the originators was Linklaters on the cross-border front and Demarest & Almeida domestically. For the lead, counsel was Dewey Ballantine and Pinheiro Neto, respectively.

The collateral is comprised of dollar- and euro-denominated payment orders generated through the international operations of the two originators. Santander is providing roughly two-thirds of the collateral and Banespa is providing the other third.

Also last week, BB Securities and Credit Suisse First Boston (CSFB) led a subordinated debt transaction for Banco do Brasil backed by a letter of credit (LC) from CSFB. Rated Baa1' by Moody's, the $300 million, 10-year deal yielded 8.625%. Closing is scheduled for Sept. 20.

Covering 18-months, the LC acts like a political risk insurance (PRI) policy, effectively covering the imposition of certain capital controls by a government. In the case of this LC, the originator wasn't forced to provide cash upfront, which can prove costly. "In this case, the moment there's a transferability problem they can draw on the LC," said a source close to the transaction.

The deal went to about 80 investors, including insurance companies, retail, high-grade and dedicated emerging-market accounts.

Crossborder and domestic legal counsel for the leads were Dewey Ballantine and Pinheiro Neto, respectively. For Banco do Brasil, it was Linklaters and Lefosse, respectively.

Copyright 2004 Thomson Media Inc. All Rights Reserved.

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