The world's most notorious dairy queen Parmalat might be leaving a bitter aftertaste in the mouths of some analysts. Last week, Brazilian stand-alone agency SR Rating publicly weighed in on a rating by rival Standard & Poor's on a Parmalat-related securitization in the domestic market. While conceding it has no relationship with the dairy giant, SR opined that S&P should have downgraded a deal backed by trade receivables, instead of keeping it at brAAA' on the national scale, as it had done in mid- December.

"People were coming to us regarding Parmalat, and we decided to write a technical release," said Sheila Gaul, executive director of SR. While S&P declined to comment on SR's release, the agency put out a detailed report of its own Jan. 15, elaborating on the rationale behind the rating.

A key bone of contention appears to be the yield on the deal and how that affects creditworthiness. Sized at a total R$130 million (US$46 million), the transaction is a receivables investment fund (FIDC), a hybrid structure that combines features of an SPV and an investment fund. In its release, SR argues that the expected spread of 170 basis points over CDI will be difficult to sustain with the current investments backing the deal. That, the agency contends, merits a cut to a lower rung in the investment-grade class.

The fund stopped purchasing receivables Dec. 19, the day Parmalat defaulted. As of Jan. 14, more than 90% of the fund is in investments approved by the agency, such as government securities, CDs and other short-term investments. The other 10% are in receivables of sales that have already been delivered and are short-term in nature, fewer than 15 days.

That, in and of itself, does not justify a cut, S&P said. "No rating guarantees a particular yield," said Juan Pablo de Mollein, associate director of Latin American structured finace at S&P. Moreover, he noted that in the particular case of FIDCs, "shareholders expect to receive only a targeted return." It boils down to the difference between credit and market risk, he said.

Other than that, while S&P acknowledges that the conditions of the company have deteriorated in the past several weeks, the credit enhancement for the deal has remained sufficient to sustain the triple-A rating on the national scale. Portfolio information from the servicer has "confirmed that the fund's performance is in line with the historical payment performance of the originator's client base," S&P said in the report.

De Mollein said that if the fund were to remain alive and be forced to purchase a larger share of receivables, it would likely be downgraded. Brazilian regulators do not allow FIDCs to hold more than 50% of their portfolio in non-receivables for an extended period of time. The point, however, is moot since market sources widely expect shareholders to vote for the full redemption of their shares at a Jan. 19 meeting. Itau BBA was lead bookrunner on the deal, and Banco Santander, was co-lead.

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