Brazil's domestic securitization market plowed on in 2006, with total issuance hitting R$11.9 billion ($5.6 billion), according to data provided by Uqbar, a local consultancy specializing in the securitization business. The three main rating agencies had substantially different figures from Uqbar and among themselves - a testament to the difficulties in tracking volumes in a burgeoning market where the most popular vehicle, the receivable investment fund (FIDC), can take months to sell all its shares. The consultancy put annual growth at slightly under 5%, but the figure was exponentially higher at the agencies.

All the same, some things were clear: new originators, new assets, and foreign investors made the domestic market a more interesting place. The largest asset categories in 2006 were trade receivables, which made up 26% of volume; auto loans, at 19%; public sector assets, at 15%; and payroll deducted loans, at 12%, according to Uqbar.

Among the noteworthy transactions backed by trade receivables was an FIDC program launched by four auto suppliers that belong to the conglomerate G Brasil Participacoes, known as Grupo Brasil. With Gainvest do Brasil Asset Management as the arranger, the program was backed by domestic sales to companies outside the group. "[Grupo Brasil] was a good example of a company that found in the FIDC a less expensive working capital source as compared to the traditional short-term banking transactions," said analysts at Moody's Investors Service in a report.

The auto loan sector received a jolt last year from a pair of FIDCs originated by BV Financeira, amounting to roughly R$1.5 billion. Sized at a touch over R$1 billion, the second transaction was divided into a R$500 million senior A tranche, a R$500 million subordinated B piece, and a subordinated A tranche totaling about R$1 million. Banco Votorantim was the arranger.

On the front of public sector assets, Cemig collateralized loans owed the power company by the state of Minas Gerais, where Cemig is domiciled. Sized at R$900 million, the FIDC started distributing shares in the first quarter. The underlying loans stem from credit Cemig earned with the state as a power company with above-average efficiency.

Payroll-deductible loans - the asset classes that initiated foreign investors into Brazil's domestic securitization market - also made a strong showing, with familiar originators like Banco BMG and Banco Cruzeiro do Sul coming to market. Prior to last year, the asset class had accounted for at least one-fourth of FIDC volumes since 2002. The heavier weighting of other asset classes reflects the rising popularity of securitization in Brazil's domestic market.

Foreign investors made more of a dent in Brazil's local securitization market, with some hedge funds taking the currency risk straight on, according to sources. In response to appetite abroad, one originator, Union National, set up a Delaware trust backed by the onshore FIDC, which collateralized discounted trade receivables from a variety of medium and small Brazilian companies. That facilitated the sale to an appreciable number of hedge funds, according to sources. Typically, when an onshore FIDC is sold to foreign investors, the number of buyers is small because of the bureaucratic hurdles and requisite economies of scale.

(c) 2007 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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