There was a time when presidential elections in Brazil dictated the direction of financial markets. Now things are different. By all accounts, the domestic structured finance arena has been untouched by the first-round presidential vote on Oct. 1, and the lead up to a run-off ballot set for Oct. 29, between Workers Party incumbent Luiz Inacio Lula da Silva and Social Democrat rival Geraldo Alckmin.
"In terms of issuance and the market, we haven't seen anything slowing down," said Jayme Bartling, director of structured finance at Fitch Ratings. The numbers bear that out.
According to Uqbar, a Brazilian securitization consultancy, issuance in the third quarter totaled R$3.1 billion ($1.5 billion), soaring 126% from the same period last year and 169% from the second quarter. And furious registration activity signals bulky volumes ahead as well. Registrations of domestic securitizations in the third quarter were made for a total value of R$3.2 billion, a leap of 215% from the same quarter last year.
Last year, registrations in the third quarter lagged behind issuance. This year, it's the reverse, boding well for a brisk fourth quarter.
Unfazed by politics
Regardless of how heated the presidential contest becomes, and even with the slew of scandals that have recently hit the Workers Party, originators, structurers and other ABS participants have apparently been unfazed by political noise.
"A lot of new transactions are entering the structuring phase," Bartling said. "And it's been a good mix of RMBS, CMBS and ABS."
Among the deals now selling is BV Financeira II, a receivable investment fund (FIDC) totaling R$1 billion and backed by auto loans from the deal's namesake originator. A change in the custodian from Citibank to Bradesco delayed the onset of distribution, but investors have been purchasing shares since earlier this month, according to a source close to the deal. BV Financeira II is divided into a R$500 million senior A tranche, a R$500 million subordinated B piece and a subordinated A tranche totaling at least R$1 million. Banco Votorantim is the arranger, while sister unit Votorantim Asset Management is the administrator.
A shares have a final legal of five years, while B shares are about 5.5 years. On its national scale, Standard & Poor's rated the senior piece brAAAf' and the B piece brBf'.
Elsewhere in Brazil, Union National FIDC, sized at R$105 million, is expected to launch shortly. The deal is backed by discounted trade receivables from a range of small companies. Union, a factoring company, will determine which companies will be included in the pool, according to a source close to the deal. Banco Itau, the custodian of the structure, approves each candidate, which must then be vetted by a credit committee established by the transaction. Oliveira Trust is the fund administrator. The shares mature in December 2008, and represent a follow up to a $50 million FIDC that Union issued earlier this year. Local agency Austin Rating gave the upcoming deal a A+'.
Meanwhile, Brazil's lackluster MBS sector finally has some interesting news. Brazilian Securities, a company specializing in packaging real estate receivables into bond deals, is out in the market with a R$75 million transaction, the largest deal backed by residential mortgages ever issued in the country. The originator is construction company Gafisa, which lends to both residential and commercial clients. The paper has a legal final of January 2015, and is enhanced by the subordination of R$11 million in paper. Fitch Ratings has rated the senior tranche AA(bra)' on the national scale.
In Brazil, RMBS tend to be small and are typically originated by construction companies. Local rules create disincentives for banks to securitize their mortgage portfolios.
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