Foreign investors in Latin America have found a riskier, more lucrative pouch for their funds. Shares in Brazilian receivable investment fund (FIDC) Canguru have gone to at least two hedge funds, signaling that these risk seekers are now upping the ante in their relentless hunt for meaty yield and are branching out from the safer realm of FIDCs backed by payroll-deductible loans.
Led by Rio-based boutique Hampton Solfise, Canguru is a rarity in Brazil's securitization marketplace, a deal rated below the A' category. Standard & Poor's rated the transaction brBBBf' on the national scale. Traditional foreign investors are scared off even by FIDCs in the national scale triple-A category, with the rough equivalent on the global scale typically coming under investment grade, and the yield being paid out in local currency. As a national scale triple-B, Canguru magnifies these risks. Mellon Servicios Financeiros is the fund administrator and Banco Itau is the custodian.
One draw for foreigners in this particular deal - and a disadvantage when selling domestically - has been the structure, according to a source close to the deal. Foreign hedge funds "understand the product, they know how to price [this] risk," the source said. Collateral consists of existing and future accounts receivables originated by Brazilian packaging company Canguru Embalagens. The twist is linked to the relationship between the two kinds of collateral. The existing receivables have been structured through share subordination at the national scale triple-A level to partially guaranty the amortization. In essence, the existing portion helps mitigate the risk of the future flows component.
Launched in August, some 60%, or about R$22 million ($10 million), of the fund has been sold so far, according to the source. As an open-ended FIDC, there is no deadline for selling the R$40 million full amount. The yield offered by the transaction is 120% over CDI. Triple-A FIDCs often price to yield below 110% of CDI.
Dedini gets sugar smacked
Meanwhile, dropping prices for sugar have added a sour taste to a deal for originator Dedini-Dulcini Agroindustrial. Backed by future contracts to supply sugar and liquid sugar, the one-year FIDC has so far sold R$45 million in senior shares and R$2 million in subordinated shares of a deal that was initially sized at a split of R$76 million/R$4 million. More could be sold until the deadline, which is 180 days from the book closing on September 11, but chances are it will remain the current size since the price fall has complicated the generation of receivables, said a source close to the deal. Pension funds, bank treasuries and asset managers have figured among the buyers. Gainvest do Brasil and LinkCorp. are joint arrangers on the deal and Oliveira Trust is the administrator. Citibank is the custodian.
Mapfre Vera Cruz provided a performance bond covering 10% of the deal, an enhancement that has helped it earn an F1(bra)' short-term national-scale rating from Fitch Ratings. The yield is fixed at 110% of CDI (ASR, 9/21/06).
Elsewhere in Brazil, a hefty R$1 billion FIDC is in the works for originator BV Financeira, but has been stalled by a change in the custodian, according to a source close to the transaction. The originator has replaced Citibank with Bradesco for reasons that were unclear as of press time. Backed by auto loans, the deal is divided into a R$500 million senior A tranche, a R$500 million subordinated B piece, and a subordinated A piece totaling no less than R$1 million. Banco Votorantim is the arranger, while sister unit Votorantim Asset Management is the administrator.
The A shares have a final maturity of five years, and will amortize monthly for three years after a grace period of 24 months. The B shares will amortize every six months for three years after a grace period of 30 months.
S&P rated the senior shares brAAAf' and the B shares brBf', both on the national scale.
Brazil DPR: drop in a desert
On the cross-border front, Brazil's Banco Itau is prepping a $200 million, seven-year floating rate deal, according to an S&P press release. Dresdner Kleinwort Wasserstein is the lead on the transaction, according to a market source. The deal is the bank's 10th series from a securitization program and brings the total volume outstanding to $962 million. The collateral consists of diversified payment rights, an asset class linked to electronic money flows. S&P has rated the deal BBB+'.
The deal comes eight months after the last public DPR transaction from Brazil. Once a thriving marketplace, Brazilian DPR deals have been few and far between since soaring commodity prices and strengthening credit fundamentals in Brazil have given local banks access to easier money.
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