Companhia Vale do Rio Doce (CVRD), Brazil's largest mining company, is looking to establish a secured export note (SEN) program, which will resemble Petroleos Mexicanos' (Pemex) mammoth $6 billion SEN program, banking sources said recently.

Before it does, however, it is likely to introduce itself to asset backed investors via reactivated plans for a seven-year transaction, expected to total no less than $300 million and scheduled for launch early in the first quarter next year.

"They're doing this now so that in the future they can take the Pemex route and come out with more deals that are flexible and can attract the high grade investors," said an analyst close to the deal.

If the initial transaction goes ahead it will be managed by Banc of America Securities LLC and is likely to be split into two tranches; one wrapped by MBIA Insurance Corp. and one unwrapped, the analyst said.

In order to bring insurers on board, however, CVRD will first have to secure investment grade ratings from both Moody's Investors Service and Standard & Poor's Ratings Services. While Duff & Phelps Credit Rating Co. and Moody's are both prepared to grant the deal investment-grade ratings, S&P is holding out, according to a source familiar with the transaction a fact that may keep MBIA out of the structure but would not necessarily impede an unwrapped securitization.

As the supplier of 4% of the world's iron ore, CVRD is certainly well positioned to securitize its exports, said Antonio de Castro, a corporate analyst in Salomon Smith Barney's Sao Paulo office. Over 65% of the company's roughly $3 billion in annual revenues is generated by exports, de Castro said, providing it with a wealth of future flows for securitization.

Although the firm already has two Eurobonds outstanding one due in 2004 with a put option in 2001 and the other due in 2003 the upcoming securitization would mark CVRD's first foray into the asset-backed market.

Securitization would be a sensible option, de Castro said, as the company's debt structure is woefully undiversified.

Although CVRD's extremely strong cash levels protected it from the recent financial crises, the mining giant still suffered a crunch due to its heavy dependence on short-term trade financing that currently makes up roughly half of its $2 billion worth of debt.

But, de Castro added, the company is under no pressure to issue debt because of its massive revenues and may elect to postpone the bond sale as it did earlier this year.

CVRD awarded the mandate to Banc of America in late 1998, and began talking to investors in spring 1999. However, the company pulled the deal shortly after, with primary market spreads quickly becoming prohibitively expensive.

While market conditions are expected to be more favorable early next year, internal dynamics within CVRD could waylay the deal yet again, said an analyst working on the transaction. Privatized only two years ago, the conglomerate retains much of the bureaucratic style of management characteristic of state-run enterprises. "They're like a slow moving dinosaur," he said.

Nevertheless, if the deal comes to market this winter, it is likely to create quite a splash, he said, as a result of CVRD's inherent strengths and potential as a repeat issuer.

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