U.S.-based medical equipment leasing and finance specialist DVI Inc., is structuring its first Latin American asset-backed deal. Through its subsidiary Medical Systems Finance S.A., the company is looking to securitize its Brazilian medical leases during the first quarter of next year.
The transaction, which is said to be for a total of $85 million, will be managed by Credit Suisse First Boston (CSFB) and will be offered to U.S. investors as a private placement. Because of the private nature of the deal, officials from DVI and CSFB declined to comment.
But DVI is no stranger to the world of asset backed transactions. "The company has been very active in the U.S. securitization market," said Michael Morcom, an analyst with Duff & Phelps Credit Rating Co. in New York. "After doing over 20 U.S. securitizations, they chose Brazil as the place from which to launch their first international securitization because it's the country with the largest book of leases for the company right now."
As is often the case with emerging market transactions there are some local currency risks imbedded in the structure. In this deal, the leases of medical equipment to privately owned hospitals, clinics and doctor's offices throughout Brazil are in dollars. The payments, however, are made in local currency. In order to address this risk and achieve investment-grade ratings, the deal is likely to feature a transfer and convertibility insurance policy from Multilateral Investment Guarantee Agency, a World Bank affiliate.
"There were two other issuers out of Latin America this year [Telefonica del Peru S.A. and Argentina's Banco Hipotecario S.A.] that structured deals based on local currency flows and received high ratings but that ultimately weren't very well received by the market," explained Morcom. "Investors are very conscious of devaluation risks and they felt that those risks were not adequately addressed in those two offerings."
Despite these concerns, the market views DVI's transaction favorably. "I think the deal has a very innovative structure and definite potential," said one buyside source.
If the deal is well received by the market, others could follow, as DVI has subsidiaries in Argentina, Uruguay and Colombia, Morcom added.
