Depending on the criteria, volumes in Brazil's structured finance market either boomed or tanked last year. Factoring in private deals that are widely understood to be entirely tax-motivated, volumes hit about R$15.5 billion ($8.7 billion), a nearly 29% leap from 2006, according to data collected by local consultancy Uqbar.

"A lot of [activity] has shifted to private placements," said Chuck Spragins, a partner at Uqbar.

Factoring out these deals, however, the picture dramatically alters. Fitch Ratings puts total issuance of public securitizations in the domestic market at the local currency equivalent of $3.08 billion, a 42% plunge from the $5.30 billion the agency registered in 2006.

Securitization in Brazil's domestic arena consists of shares in receivable investment funds (FIDCs) and CRI notes, which collateralize real estate receivables.

Some sizable private FIDCs skewed the figure that included this fast-growing sector, with one linked to Petroleos Brasileiros totaling about R$2.2 billion.

For the public market, the drop in issuance was less a function of shrinking global liquidity than of internal factors, namely less issuance from small and medium-sized banks. "There was a big drop in the banking sector," said a market source. "Auto loans, consumer loans, and payroll-deductible loans were all down." These originators had fueled the rise in issuance in 2006, especially for deals collateralizing payroll deductible loans, but in 2007 a spate of IPOs cut their need for financing.

A large originator, Banco Votorantim, also inflated the 2006 figure, having issued R$1.5 billion in auto-loan backed deals that year.

The liquidity scare abroad had less of an impact, if any at all, on the market. "We really haven't felt anything of what we're seeing in global markets," said one Sao Paulo-based banker. "[But] we do see investors analyzing with more caution the risk factors of each transaction."

While activity slowed in the public realm, an asset class known precatorios made its debut early last year, and is expected to spur more issuance this year. Precatorios consist of obligations that the government, at the federal, state or municipal level, has been ordered by a court to pay an entity.

They are often generated after a drawn out legal battle in which the government in question challenges an alleged debt and loses in court. Banco do Brasil, Deutsche Bank, and Standard Bank are among the players that led precatorio-backed deals last year.

(c) 2008 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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