Compared to the billions of euros implicated in the Parmalat scandal and the untold losses already suffered by investors, a R$130 million (US$46 million) securitization in Brazil might seem inconsequential. But to some financial players in Sao Paulo, this deal's impact on the fate of a new vehicle, the receivables investment fund (FIDC), was the real story, and not its negligible place within the imploding world of Parmalat debt.

"It was a test for the structure," said one Sao Paulo-based banker.

And most agree that it passed with flying colors.

On Jan. 19, the nine investors in the Parmalat FIDC, which securitized trade receivables, voted to redeem their shares. Capital and interest on the senior shares were fully paid out based on the targeted yield of 170 basis points over the benchmark CDI rate. "The investors lost nothing; in fact, they made a profit," said Juan Pablo de Mollein, associate director of Latin American structured finance at Standard & Poor's. "It's probably one of few Parmalat investments you can say that about right now."

S&P had steadfastly held its rating on the deal at brAAA' in the face of criticism. Rival SR Rating had disputed the rating, arguing that it should have been dropped to a lower notch within the investment-grade scale (see ASR, 1/19, p.1).

The Parmalat FIDC is not utterly dead. The asset management affiliate of Banco Itau BBA, which was bookrunner on the deal, clung to a single share, valued at R$21,250, plus its corresponding subordinated piece of R$3,750. The value of the subordinated tranche of the original deal, now at R$19.2 million (US$6.8 million), has not been redeemed and cannot be until the fund has definitively closed down.

Itau was understood to have held half the original deal. Under Brazilian regulations, the bank has roughly a month to decide what to do with the fund. The S&P rating holds until the vehicle is either definitively put to rest or new assets are brought in. In the latter case, the agency will re-evaluate the transaction as a new entity, if contracted again for a rating, De Mollein said.

Some players were disappointed that investors bailed out so quickly. The extreme circumstances of the originator would have tested more aspects of the new vehicle, if only the fund had stayed alive. Unfortunately, it was investors' nerves that were most tested. "We lost the chance to see how it would have worked under real stress," said Renato Jabur, an associate at Levy & Salomao.

Banco Santander co-led the Parmalat FIDC. Motta, Fernandes Rocha provided legal counsel.

Copyright 2004 Thomson Media Inc. All Rights Reserved.

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