Receivables investment funds (FIDCs) remain the leading game in town for Brazil's domestic ABS market, with three transactions dropping into the pipeline last week. Two of the deals are backed by personal loans for government employees. Banco BGN is originating one of these transactions. Its program is sized at R$200 million (US$65 million), with an initial tap likely to reach R$50 million (US$16.3 million) for the senior piece and R$8.8 million (US$2.9 million) in a subordinated chunk. The fund is closed-ended and has a 36-month maturity.

Moody's America Latina rated the senior shares' on the national scale and Ba2' local currency, global scale. BGN arranged the deal itself, while structured finance regulars Motta, Fernandes Rocha provided legal counsel. Assuming a ceiling target yield of 120% of the benchmark CDI rate, the projected excess spread is 20%. The purchased loans carry interest rates that range from 35% to 55% a year. The fund manager is Oliveira Trust.

The government employees who are the deal's obligors are spread throughout the country and have fairly stable jobs, as Brazilian law makes it difficult to fire public workers, according to a source familiar with the deal. The northeastern state of Pernambuco - where BGN is based - accounts for a little more than a quarter of the borrowers.

In some ways the transaction is an echo of loan-backed deals issued by Banex in neighboring Argentina. In both programs, for instance, loan payments are automatically deducted from an employee's paycheck.

Meanwhile, Sao Paulo-based Banco Schahin has a transaction in the works with a senior tranche of R$80 million (US$26 million) and a subordinated piece worth R$20 million (US$6.5 million), according to a source familiar with the deal. Thanks to that subordination and a projected excess spread of about 40%, the transaction is rated brAAAf' on the national scale by Standard & Poor's. Gainvest do Brasil Asset Management structured the transaction and Concordia is the fund manager. The deal is a closed-ended fund with a maturity of 29 months.

While Schahin is active in other business lines, the collateral for the deal is being originated solely through the brand "CIFRA a Jato", a lending program designed for public-sector employees. The bank has agreements with several government entities to provide this service.

Finally, the Pao de Acucar ("sugarloaf") fund has been reopened to issue another R$120 million (US$39 million) in senior shares, according to a release by Fitch Atlantic Rating. The deal will have the same characteristics as the original, including a final maturity of May 2008.

Pao de Acucar securitizes a variety of receivables originated by Companhia Brasileira de Distribuicao (CBD) and its subsidiaries in the retail sector. The decision to reopen was made at a shareholders' meeting held June 21. The original deal, sized at R$500 million (US$163 million) in senior and subordinated shares, is believed to be entirely in the hands of the arranger Rabobank.

The speculation is that Rabobank has obtained ultra-cheap local currency funding through its parent and has structured and purchased FIDCs for corporate clients at rates that issuers could not obtain in the market. Pao de Acucar has a targeted return of 105% of CDI, but other Rabobank-led deals have actually priced under the CDI, indicating that the bank may indeed have cheap money for preferred clients.

Copyright 2004 Thomson Media Inc. All Rights Reserved.

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