A new structural twist will soon join the landscape of receivable investment funds (FIDCs), Brazil's most popular securitization vehicle. Structuring agent Hampton Solfise last week roadshowed an FIDC for Brazilian packaging company Canguru Embalagen, a fund that features R$40 million ($19 million) in senior notes with a five-year maturity. Standard & Poor's rated the senior shares brBBBf' on its national scale. Collateral consists of existing and future accounts receivables. Mellon Servicos Financeiros is the fund administrator and Banco Itau is the custodian.

The novelty of the deal stems from the effective partial guaranty that the existing assets in the underlying pool are providing for the senior notes, thereby mitigating the risk of the future flow portion. "The structure is somewhat linked to the risk of the originator (Canguru), which has a lower rating than the preliminary ratings assigned to the fund's senior shares, because part of the fund's structure relies on future receivables," said Pedro Gazoni, associate at S&P. "However, the existing trade receivables will be structured through share subordination at the brAAAf level to partially guarantee the amortization and redemption risk of the fund's shares."

Backing the transaction are receivables from customers that use Canguru's packaging. There is a concentration limit of 3% on each customer's contribution to the collateral, with a higher cap of 5% for exceptions Mabesa do Brasil, Unilever Brasil, and Johnson & Johnson, and 15% for Kimberly Clark Brasil.

Hampton Solfise is heard to be testing the waters with a yield of 120% of CDI, according to a source close to the deal. A market source said that share distribution would probably start in about two weeks.

Meanwhile, sugar and alcohol producer Usaciga is back in the securitization game after taking a timeout to tweak its FIDC in order to elevate the rating. Some R$42.5 million in senior shares recently secured an A-(bra)' from Fitch Ratings, a two-notch boost from the BBB(bra)' assigned to the senior shares several months ago. Acrux Asset Management structured the deal, Mellon is the administrator, and Deutsche Bank is the custodian.

The deal features R$33.0 million in subordinated shares and the final maturity for both tranches is roughly eight years. Collateral is comprised of electricity that Usaciga will sell to local energy giant Eletrobras, as governed by a contract between the two parties. That electricity will come from a facility that has yet to come online and will use residual fuels generated in processing sugarcane. To mitigate the operational risk of the new facility, J. Malucelli Seguradora has provided a performance bond for the entire sum of the senior shares during an initial phase of the project. Under the prior rating, the performance bond covered R$26 million, coming short of the entire volume of the senior tranche.

Under the terms of the deal, Usaciga will expand and retrofit a plant located in the municipality of Cidade Gaucha, in Parana state, to a capacity of 40 Megawatt hours. Currently, the plant doesn't run on biomass, and its current capacity is 8.6 Megawatt hours. The plant is expected to be ready to use biomass for fuel in September.

Elsewhere in Brazil, Brazilian bus manufacturer Marcopolo has sold a R$30 million batch in senior shares off its FIDC program, according to a source close to the deal. Banco Bradesco, which jointly arranged the transaction with Gainvest, is understood to have been the buyer. The deal is backed by vehicle loans from Marcopolo's captive bank, Banco Moneo. The maturity is 60 months and the rating AA-(bra)' from Fitch. The program, for about R$90 million, will be fully tapped by the end of November, according to the source.

Meanwhile, Fitch Ratings put out a report on consumer loans in Brazil that enjoy the security of automatic deduction from paychecks or other income sources, an asset class that has been proved fruitful for a wide gamut of players. The agency noted that nearly all the leading bank originators of payroll loans have securitized their portfolios via FIDCs. What's more, the asset class is the bread and butter of a number of arrangers, fund administrators and custodians, making up no less than one-fourth of annual issuance volumes in FIDCs since the domestic securitization market emerged in 2002.

Payroll deductible loans totaled R$35 billion in 2005, having more than tripled from an estimated R$10 billion in 2003, according to Fitch. The agency pointed out that more than 60% of borrowers are understood to use their payroll loans to refinance existing debts, since the costs of the former are often lower.

Banks in Brazil that have collateralized their payroll deductible loans include Banco BMG, Banco BGN, Banco BMC, Banco Pine, Parana Banco, and Banco Rural. One market source said that the larger banks in Brazil - namely Banco Itau, Banco do Brasil, and Unibanco - have been purchasing these assets from their smaller peers. He added that this is unlikely to weaken their contribution to the FIDC sector, since the smaller banks will always want alternative means of funding.

(c) 2006 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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