Brazilian consulting firm Hampton Solfise has structured a R$136-million (US$39.4 million) senior share issue by local fund FMAX. Backed by consumer loan receivables and earmarked for a November placement, the deal is typically Brazilian in that the structuring agent opted for a fund structure because of several tax exemptions applied to that sector. "SPVs don't work here because of the tax burden," said Patricia Bentes, managing director of Hampton Solfise.
Another advantage of the fund structure is that investors can redeem their shares after a grace period of three months. The issuer will sell 4,000 senior and 1,400 subordinated shares, which will be used to make revolving purchases of receivables originated by Maxima Financeira, a Brazilian consumer financing company. Moody's Investors Service has rated the deal Aaa.br' on the national scale and Baa2' in local currency on the global scale.
Maxima Financeira will absorb the subordinated piece. The deal benefits from Maxima Financiera's tough standards for extending consumer loans and experience in the field. In addition, the deal has a dynamic collateralization. It was 36% overcollateralized as of the one-year future CDI rate at the end of August. The CDI is Brazil's interbank lending rate.
The deal is pricing off the CDI rate. Judging by current market conditions, Bentes expects the yield to come at around 110% of CDI. Hampton is roadshowing the deal in September and October. Much of the Brazilian market is teetering on the edge because of a potential victory for leftist candidate Jose Inacio Lula da Silva in October elections. Bentes says a left-wing triumph could be a boon for the FMAX deal. "There will be an enormous interest in securitization backed by private credit," she said.
In any event, Bentes does not foresee difficulties for the deal with any particular election result: "There's not only the rating [AAA] but also the diversification it provides."
Hampton will peddle the transaction to pension funds, asset managers, and private banking clients.