In a recent report, Fitch Ratings said that risks inherent in Brazilian multi-seller/multi-obligor ABS have become more heightened in recent deals backed by factoring company receivables. Generally, factoring companies in Brazil are privately held businesses that buy trade receivables from a variety of companies at a discount.
“Over the past few years, many factoring companies have transformed their business operations into securitization structures via FIDCs [receivable investment funds, the main vehicle for non-real estate ABS in the country],” the agency said. As essentially non-regulated institutions, Brazilian factoring companies present a series of risks which are then carried over into ABS deals.
These risks include insufficient checks and balances; a questionable alignment of economic interests among investors, sponsors, and sellers; incomplete information about past performance; and others that are enumerated and explained in the report, which is linked below.
In view of this, Fitch caps FIDCs in this sector at the national scale rating of ‘BBB(bra).’