Brazilian water company Companhia de Saneamento Basico do Estado de Sao Paulo (Sabesp) looks to issue a R$263 million ($120.1 million) receivable investment fund (FIDC) shortly before Carnaval, which this year falls on Feb. 28, according to a source close to the deal.

Banco Votorantim, Caixa Economica Federal and Banco do Brasil are committed to purchasing unsold shares.

"We have that in writing," according to the source.

Bearing a preliminary spread of 125 basis points over the benchmark CDI rate, the fund is closed ended with a maturity of 60 months. Fitch Ratings gave the fund's R$250 million in senior shares a AA+(bra)' on the national scale. The subordinated chunk, for R$13 million, isn't rated and will be purchased in its entirety by Sabesp. Votorantim is the lead structuring bank, Caixa is the fund manager and Banco do Brasil is the custodian.

The transaction is backed by future bills to the company's residential, commercial and industrial clients. Among the factors supporting Fitch's rating are the resilience of the concessions held by Sabesp, the fact that the senior shares represent a negligible 3.6% of the company's total revenue and the fund manager's ability to liquidate the shares under certain events.

Sabesp runs the water system in 368 municipalities in the prosperous state of Sao Paulo, which controls the company. It provides water to 25 million residents.

Elsewhere in Brazil, the market is abuzz with talk that a top tier local bank plans to securitize its entire portfolio of consumer credit. A trade receivable transaction for an auto supplier is also said to be in the works. Both transactions will use the FIDC vehicle.

CRIs could get more respect

While the FIDC vehicle is all the rage among banks and corporates in a variety of sectors, CRIs, which are used exclusively for real estate transactions, are also expected to win over more issuers this year. According to data from Moody's Investors Service, CRI issuance hit R$2 billion last year. While that fell far short of the R$7.7 billion issued in FIDCs, efforts by regulators to promote RMBS and recent CMBS deals that garnered a good deal of press could help propel the growth of CRIs, sources said.

A transaction last year for the Diniz family might provide a boost to CRIs, said one Brazilian source. The family, which sold control of the Pao de Acucar supermarket chain to France's Casino Guichard-Perrachon for $587 million, retained ownership of real estate assets connected to the business. The Diniz family then securitized the rental payments it was receiving from the new majority shareholders through a CRI for roughly R$1 billion. The deal, according to one source, reaped tax benefits for the Diniz family, which might spur others to follow suit.

(c) 2006 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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