Obeying the rhythms of the Southern Hemisphere, Brazil's domestic ABS market has been bustling, while cross-border issuance from the country has fallen victim to the dead calm that typically preys on Europe and the U.S. in August.

For the locals, the receivables investment fund (FIDC) - a marriage of investment fund and traditional SPE - remains the vehicle of choice, favored mostly for its tax perks. Up ahead in the FIDC

market, personal loan-backed BGNPremium I is scheduled to start distributing shares this week, according to sources.

Arranger Itau BBA was scheduled to close the book on the R$59 million (US$20 million) transaction last Friday. "They're just finishing the roadshow process," said Juarez Dias, a partner at Oliveira Trust, the fund manager for the BGN FIDC.

The closed-ended fund is split into a R$50 million (US$17 million) senior tranche and a R$8.8 million (US$2.9 million) subordinated one. The initial target yield was 106% of CDI and maturity is 36 months. Moody's America Latina rates the senior tranche Aa2.br' on the national scale. The subordinated class is unrated. Motta, Fernandes Rocha provided legal counsel.

The deal kicks off a R$200 million (US$67 million) program, which benefits from the fact that the collateral - payments of personal loans to originator Banco BGN - is automatically deducted from debtors' paychecks. A 22% floor has been set on the excess spread.

Based in the Northeast city of Recife, BGN is a niche bank, providing personal loans to public employees at all levels of government. As of June 30, 2003, personal loans accounted for 74% of BGN's loan portfolio; corporate loans made up the other 26%. The bank threw more weight behind its personal-loan business in the wake of the financial volatility that beset Latin America in 1998 and 1999, according to a Moody's report.

Rabobank - one of the rare foreign names building a business of structuring FIDC - is also heard with an imminent deal. Its fund is backed by trade receivables, with manufacturer Amanco originating. The company produces tube system products for the construction, agricultural and infrastructure sectors.

The deal is sized at up to R$60 million (US$20 million), with the senior shares capped at R$48 million (US$16 million). Fitch Atlantic Ratings has rated the senior chunk AAA(bra)' on the national scale. Concordia is the fund manager and Banco Itau is custodian. The expected return on the roughly five-year deal is 110% of CDI, rather high for the rating level. Rabobank was said to have been the sole investor for previous trade-receivable FIDC it has structured, as a way to provide cheap financing to its clients. Indeed, two originators that have issued via Rabobank, Sadia and Perdigao, garnered a yield that was actually below CDI, a compelling sign that market investors were not involved. With the wider spread on the Amanco deal, that strategy might have changed. The fund is a bullet, with full amortization at maturity.

Against comparable trade-receivable FIDCs, Amanco's fund is exceedingly diversified. Receivables from the five largest obligors cannot account for more than 10% of the total volume - senior and subordinated pieces - of the transaction, according to a report by Fitch Atlantic. In addition, collateral collected from the 15 largest obligors cannot top 20% of the issue. Receivables from each of the remaining obligors are capped at 0.6%.

Meanwhile, homegrown structurer Integral Trust is returning to the market with two originators. Excess demand for an FIDC last year originated by Banco BMG has prompted the bank to reopen the fund, according to a source familiar with the transaction. With a senior piece worth up to R$60 million (US$20 million) and a junior piece capped at R$20 million (US$6.7 million), the followup deal will have the same terms as the first one, which has a two-year maturity. Fitch Atlantic has rated the second fund AAA(bra)'.

Auto loan originator Omni also has an upcoming deal handled by Integral. Its FIDC is a senior/subordinated structure worth up to R$7.5 million (US$2.5 million) and R$2.5 million (US$837,000), respectively. The deal marks the fourth in a program launched earlier this year, backed by auto loans.

Meanwhile, the first shares in Millingmax FIDC sold on July 27 and about R$15 million (US$5 million) has been snatched up so far in senior notes capped at R$50 million (US$17 million). The target yield on the four-year senior piece is 200 basis points over CDI. "Most of the buyers are pension funds," said Dias from Oliveira Trust, which is fund manager for the transaction. He said that the process to distribute the shares will be slow. The originator is Predileto, Brazil's third largest flour miller and eighth largest poultry producer. Most of the trade receivables making up the collateral are linked to Brazilian customers, but about 10% are embedded in poultry export contracts.

The structurer is first-timer Banco Santos, while the rating on the senior chunk is A+(bra)', from Fitch Atlantic.

Finally, an FIDC originated by Banco Cruzeiro do Sul closed share distribution on Aug. 2, according to a report by Fitch Atlantic. The fund sold R$57.9 million (US$19 million) in senior shares and R$19.6 million (US$6.6 million) in a subordinated piece. Personal loans granted to government employees comprise the collateral. A 10% concentration limit has been set on the receivables contribution from four pre-selected entities, with Ambra, a trade group of Brazilian musicians, among them.

FIDCs not the only

game in town

Elsewhere in Brazil, Altere Securitizadora issued a single-class R$52 million (US$17 million) real estate receivables transaction. Primarily a securitization of mortgages originated by Gafisa, the transaction priced at 13% over IGP-M, the wholesale price index. Local agencies Austin and LF rated the transction AA-' on the national scale. "Buyers were primarily pension funds, but some individual investors went ahead and bought in," said Maximo Lima, director of GP Investimentos, which controls Altere. The loans in the deal were linked to a building that had not yet been completed when the deal closed, giving the transaction a future-flow component. A small part of the collateral was comprised of future home sales, Lima added.

As the gradual fall in Brazilian interest rates has come to a halt for at least the near term, bank loans might prove to be less competition for funding real estate-related originators. "Collateralized loans from a bank can be cheaper [than a securitization] but now banks are pulling out a little," Lima said.

Caveat lector

Finally, toll-road operator Nova Dutra closed a R$180 million (US$60 million), four-year debenture on Aug. 19. Despite what at least one news agency reported, it was hardly ABS, according to sources. Pricing came to 9.5% over IGP-M. Led by Itau BBA and co-managed by Banco Pactual and Unibanco, the deal was guaranteed by the future cash flows from toll receivables and other cash that the originator has in its vaults. "It's more a guaranty than an asset-backed feature," said Mauro Storino, a senior analyst at Fitch Atlantic. The collateral is not bankruptcy remote, but the debt holders do have a lien on the assets. "It's not 100% plain vanilla, but it is also not a real securitization," said a banker away from the transaction. Fitch Atlantic rated the debenture A(bra)'.

Copyright 2004 Thomson Media Inc. All Rights Reserved.

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