The Brazilian rush to the dollar market shows no sign of abating. The future-flows class continues to drive the stampede and MBIA remains the go-to guarantor. Propelled largely by this third-quarter bonanza, future flows out of Latin America could near the US$4 billion mark for 2003 - the high end of Fitch Ratings' forecast. To date, the sector has yielded roughly US$2.5 billion, all but US$163 million of which is from Brazil.

In a move that surprised more than a few market watchers, iron ore producer Companhia Vale do Rio Doce (CVRD) closed a US$250 million 144A with no registration rights, backed by iron ore and pellet export receivables. JPMorgan was the lead. Tongues wagged about a delay in the ABS after CVRD handed a mandate for a US$300 million plain-vanilla deal to Morgan Stanley and Deutsche Bank a few weeks ago, but the issuer decided to do the securitization first, sources said.

Wrapped by MBIA, the fixed-rate, 10-year final deal priced at 4.48%. The average life was slightly over six years. Investors were the usual high-grade suspects for triple-A rated paper, said a source on the deal. Moody's Investors Service, Standard & Poor's and FitchRatings gave the ABS shadow ratings of "Baa2", "BBB" and "BBB", respectively. White & Case counseled the lead, while Machado, Meyer, Sendacz e Opice provided domestic counsel to CVRD. The originator dispensed with cross-border counsel, according to a source.

The transaction comes off an existing program and brings total outstanding paper issued by company vehicle CVRD Finance to US$530 million. Six of CVRD's longstanding customers have pledged to deposit payments for ore and pellets from the overseas unit to a U.S. collection account.

A giant from about any angle, CVRD is the world's leading producer and exporter of iron ore, as well as Latin America's biggest mining company and, on a consolidated basis, Brazil's largest net exporter, according to Moody's. Company revenues hit US$4.282 billion in 2002.

Coming off CVRD's heels, another exporter, Aracruz Celulose, priced a US$400 million eight-year legal final 144a/Reg S at 7.048% via Citigroup (see ASR 7/28, p.18), according to a source on the company. The spread came to 390 basis points over five-year Treasurys. That put it tight to virtually identically rated transactions by fellow Brazilian exporters Gerdau/ Acominas and CSN that priced earlier this month. An uptick in Treasury rates might have helped compress the Aracruz spread. At the same time, Gerdau/Acominas and CSN might have both suffered moderately by coming out too close to each other, given that they are both steel exporters. An investor who looked at all three deals said the corporate risk of Aracruz was marginally lower.

Banking sector

Next in the Brazilian parade is Banco Bradesco, with a US$300 million, seven-year final transaction comprised of two tranches. A fixed-rate piece sized at US$100 million is rated BBB' and Baa' by S&P and Moody's, while a US$200 million floater wrapped by MBIA is naturally triple-AAA. They are expected to price within the next couple of weeks.

Collateral for the transaction are future diversified payment rights (DPRs) in the form of dollar-denominated payment orders generated through the international banking operations of Banco Bradesco. This marks Bradesco's first transaction in the MT-100 sector, as DPR deals are known. All of the other leading banks in Brazil have issued MT-100s and are expected to continue doing so. "Many of the existing bank issuers still have capacity," said Garry Kochubka, director of structured finance ratings at S&P.

DPRs cover trade payments, foreign direct investment (FDI), worker remittances and other flows. Under its program, Bradesco has agreed to sell its rights to all U.S. dollar-denominated orders via designated foreign correspondent banks and customers of Bradesco branches outside Brazil. Accounting for 94% of DPR flows in 2002, the group of banks include Deutsche Bank Trust Co. America, The Bank of New York, Bank of America, American Express Bank, Standard Chartered Bank, Citibank, JPMorganChase Bank and Wachovia Bank.

Bradesco is the country's largest private bank and third-largest overall. It controls a sprawling network of 2,965 regular branches and 1,868 mini-branches in Brazil.

At closing, overcollateralization will be 440 times quarterly debt service, retreating to 100x in an unstressed scenario once amortization begins in the third year, according to S&P.

DPR collection is trapped offshore, made directly by the designated banks without having to pass through Bradesco. That isolation offers a degree of comfort for investors leery of sovereign risk.

While Brazil has monopolized MT-100s this year, there may be a rare deal from other corners of the region. "Issuers from other countries could come as well," said Gregory Kabance, senior director of Latin American structured finance at Fitch.

One non-Brazilian bank rumored to be eyeing the MT-100 playing field is Banco de Credito del Peru (BCP). The issuer is no greenhorn in structured finance. It has tapped credit card vouchers and DPRs in separate deals underwritten by ING Securities, according to sources. MBIA provided wraps for each. The MT-100 came out in November 1998, with collateral flows stemming from export receipts, followed by inflows of direct investment and hard currency payments for services such as tourism. Recently, family remittances have been growing in the mix, although they are still marginal compared to export flows.

Striking oil

Elsewhere, the rumor mill has Trinadadian oil exporter Petrotrin potentially returning to the cross-border market in the medium term. Its last visit to the land of structured finance was in December 2001, with an MBIA-wrapped US$150 million, 13-year legal final securitization of forward sales of diesel fuel. The transaction priced at 185 basis points over Treasuries, according to one source. The structure resembled a recent two issue transaction from YPF under the generic name Oil International, according to one source.

Investors have been kind to the oil sector in the aftermath of the Argentine implosion. YPF is the only Argentine issuer with current access to the cross-border market and Brazil's Petrobras has tapped the securitization market for US$750 million so far this year, more than any other Latin American issuer. Apart from proven track records, Latin American oil companies benefit from the plethora of comparables in the U.S. and other markets. In the case of Petrobras, the spread relative to U.S. non-investment grade energy companies has piqued the attention of investors. In fact, high-yield investors bought a significant chunk of the company's last issuance in May, even though the non-wrapped US$500 million tranche was on the cusp of investment grade at BBB-' from S&P and Fitch and Baa2' from Moody's.

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