Brazilian originators haven't offered cross-border investors much lately.

That's because the climate remains more receptive to unsecured paper, or, in the case of exporters, dining off revenue that's grown fat off bulging commodity prices.

But HSBC Bank Brasil - Banco Multiplo (HSBC Brasil) is heard to be road showing a $200 million, 10-year bond backed by diversified payment rights (DPRs), the asset class linked to electronic money flows.

FGIC is wrapping the transaction, hoisting its rating to triple-A from Moody's Investors Service and Standard & Poor's. The underlying ratings are Baa1' and BBB,' respectively. The deal is FGIC's second effort in Brazil, following a DPR transaction that closed in September for Unibanco. A warehouse facility for $200 million, the Unibanco deal has yet to be tapped.

The HSBC deal is a first for the bank and will mark only the second time a global bank in Brazil has securitized DPRs. The debut was made by Banco Santander and related entity Banco do Estado de Sao Paulo, which issued a $400 million bond in September 2004.

The reason the sector has been the province of local banks is that DPRs offer a way for them to secure longer-term funding and attract investors of higher-grade paper. Conventional wisdom holds that a local unit of a global bank enjoys access to funding via its parent that is cheaper than it could garner as a stand-alone corporate. But HSBC could be going the DPR route to diversify funding sources and push out tenors.

"Affiliates of big banks don't want to get all their funding from their parents," said a source that has structured finance experience in Brazil.

The originator's lack of urgency as a unit of a global bank could explain why this transaction took such a long time to come to market. Talk of it swirled through the market as far back as 2004.

The structure, which in most respects is a standard DPR transaction, still has one notable quirk: an unusually high concentration of payment orders with two correspondent banks. Nearly 99% are processed by HSBC Bank USA and Bank of New York. About 94% of the flows stream through the HSBC unit alone. The correspondent bank portion of most DPR transactions casts a much wider net.

Moody's sees several factors mitigating the risk of such narrow participation. Among them are: a foreign currency rating on HSBC Bank USA of Aa2' and a bank financial strength rating of B-'; the fact that at least four other correspondent banks would be able to process the flows in the event that the HSBC unit could no longer do so; a stipulation in the deal's documents that at least 70% of the collections must be processed through the designated correspondent banks, and if this criterion isn't met, amortization will ensue; and Moody's assessment that coverage levels would still be high enough to support the debt issued under the "very unlikely" event that flows originated by HSBC clients take a nosedive.

In 2005, HSBC Brasil generated nearly $18 billion in DPRs, with a sharp upswing from February to August. Overall, DPRs skyrocketed 180% last year from the 2004 level. Buoyant exports no doubt played a key role, as foreign exchange flows into Brazil consist of export receipts followed by inflows for foreign direct investment and the payment for services.

HSBC Brasil is the sixth largest privately owned bank in Brazil, with total assets of about $22.2 billion (R$49.5 billion) as of September 2005. It is the fifth largest in terms of deposits.

(c) 2006 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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