Struggling hydro-power producer Companhia Energetic de Sao Paulo (CESP) is pressing ahead with plans to issue a receivables investment fund (FIDC) in Brazil's domestic market, sources said. In a release, the company said it was seeking up to R$315 million (US$101 million) in a five-year transaction backed by receivables stemming from contracts with Companhia Brasileira de Aluminio, Codemin, Carbocloro, Gerdau, and other companies that freely negotiate purchases from CESP. The issuer has selected three banks to manage the transaction: Banco Bradesco, Itau BBA, and Banco ABC Brasil. Each has agreed to underwrite or sell up to R$100 million (US$32 million) of the FIDC - depending on its final size - at a cost to the company of 200 basis points. This will come on top of fees for placement, structuring, coordination and other facets of the issue.

The fund will feature a senior/subordinated split. The issuer has set a ceiling for the targeted yield at 350 basis points over the benchmark CDI.

Latin America's third largest power generator, CESP has been contending with massive debt problems sparked by the devaluation of the real and compounded by falling energy sales. In a report issued in October 2003, Standard & Poor's pointed out that, with 77% of its debt denominated in foreign currency, the falling real forced the company to restructure debt maturing in 2003 and 2004. The workout led to a lengthening of maturities, but the bulk of short-term debt remains nearly unmanageable. S&P has CESP at CCC' for both global and local currency ratings. Its national scale rating is also brCCC'.

The FIDC issue represents another step in the restructuring, said a source at the company. If successful, it should put a small dent in the dollar-denominated debt load. A chunk of the company's debt is in cross-border bonds, including 200 million and US$300 million bonds termed out to 2008 from their initial maturities in 2004. The company's major creditor is the federal government.

CESP has an installed capacity of 7,356 megawatts. It operates six hydroelectric power plants and provides 57% of the energy produced in the state of Sao Paulo. Perhaps boding ill for its peer, fellow Brazilian power producer Furnas Centrais Eletricas was chatting to the media about doing an FIDC a couple of months ago, but that has yet to move beyond talk.

Like in the rest of the world, the last several weeks have been turbulent in Brazil's domestic bond markets, stalling deals that had been moving to fruition in March.

One issuer that came through last month is Imigrantes Securitizadora, which placed a R$40.8 million (US$13 million), nine-year transaction backed by real estate receivables linked to a usage-rights agreement between Patria Fundo de Investimento Imobiliario and the Brazilian unit of chemical giant BASF. Fitch Ratings awarded the deal AA-(bra)' on the national scale, while local agency Austin Rating gave it a AA'. Regulators don't mandate two ratings on transactions in Brazil, and, as such, they are rare. The double grade for Imigrantes oiled the wheels of distribution, said a source familiar with the deal. Also, two ratings are the rule for Itau BBA when dealing with real-estate transactions.

Pension funds and asset managers bought into the deal, which provided a unique opportunity for Brazilian issuers to take on BASF exposure.

In December 2003, BASF sold Patria FII and El Trench the property where its headquarters stand in the city of Sao Bernardo do Campo. The company then acquired a 10-year US$68 million (US$22 million) lease from the buyers. The obligation is payable in 10 equal amounts, with the first payment made in Dec. 2003. The remaining nine payments make up the collateral for the ABS.

Copyright 2004 Thomson Media Inc. All Rights Reserved.

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