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In Brazil, FIDC players court first-time issuers

Brazil is abuzz with talk of first-time issuers, as a number of ABS greenhorns either award mandates, send out RFPs or thoughtfully consider unsolicited pitches. These potential deals also carry the promise of new asset classes, a welcome change for those thirsty for more diversification.

In a sure sign that the market will keep branching out, Brazilian investors are more receptive than ever to receivable investment funds (FIDCs), the vehicle of choice for local ABS. "In the beginning the problem was on the investor side, but that's not an issue anymore," said Patricia Bentes, managing director of local boutique Hampton Solfise. "If anything demand outstrips supply."

Some of those unsated investors may have already bitten into a R$50 million ($21.4 million) FIDC recently issued by manufacturer FICAP. Sole lead Itau BBA underwrote the transaction, which had a R$40 million senior tranche that priced at 107% of CDI, according to a source close to the deal. "Itau's a big asset manager and has billions of fixed income funds; it's probably placing the deal with those funds," the source said. The senior tranche has a three-year final maturity, a 20% subordination, and ratings from Moody's Investors Service of Aa2.br' on the national scale and Ba1' on the local currency global scale.

Itau's handprints are all over the transaction, with the bank also assuming the role of custodian - akin to that of master servicer - and its asset management arm, Intrag DTVM, acting as manager. Officials at Itau and Intrag did not return calls for comment as of press time.

The fund is backed by a revolving pool of receivables generated by FICAP's sales to energy, appliance, and telecommunications businesses, according to a report by Moody's.

Perhaps the transaction's most interesting feature is the fact that FICAP's parent company is Chile's Madeco, a sure sign that FIDCs are gaining fans across the region. A few Sao Paulo-based sources said they had heard of no other FIDC placed by the unit of a Chilean parent company. Madeco, an industrial conglomerate, is 55.2% controlled by Quinenco, which, in turn, is controlled by the Luksics, one of Chile's most powerful business families.

Based in the state of Rio de Janeiro, FICAP is Brazil's second largest manufacturer of copper, aluminum, and fiber optic wire and cable products for the energy, industrial, and telecommunications markets. The company was founded in 1947 as a maker of power cables and gradually expanded into other businesses. Its revenue hit R$419 million in 2004.

While the FICAP deal marks another stride for the trade receivables side of the business, the kind of medium-sized bank that has so far clung to personal loans might be expanding into new, or at least underused, collateral. One such bank is Banco BMC, which is heard looking for an arranger to structure an FIDC backed by either auto loans or receivables-backed loans to medium-sized companies.

Like Banco BGN and Banco BMG, BMC does a brisk business in personal lending, but it is unlikely to follow the lead of its peers in securitizing those assets. The word in Sao Paulo is that BMC has a commitment from Itau to purchase a sizable chunk, if not most, of its personal loan origination for a warehousing facility. That would eliminate the advantages of securitizing that asset. For auto and corporate loans, however, BMC could use the outside funding, according to one source.

Carlos Fagundes, a director of structuring shop Integral Trust, declined to name originators, but said his outfit was working on a couple of banking transactions that are backed by loans. "It's not easy to place these loans," he said. "You have to provide guarantys to investors since [collateral] is based on receivables." The first of these securitizations of "soft securitizations" - as one player has termed them - should be coming out within the next couple of months, according to Fagundes.

Elsewhere on the FIDC front, water companies are understood to be eagerly eyeing FIDCs, but at least one, Sabesp, doesn't appear to know exactly what it wants, according to sources. The company, based in the prosperous state of Sao Paulo, sent out RFPs a while back and now has asked bankers to submit proposals at the end of July. "It has taken them a while to decide," said one Sao Paulo-based banker. Sabesp serves about 25 million people spread through 368 municipalities, according to the company website. The company billed a total of 731 million cubic meters of water and posted revenue of R$1.2 billion in 1Q 2005. Standard & Poor's rates Sabesp brA' on the national scale.

Meanwhile, peer company Companhia Riograndense de Saneamento (Corsan) has already switched on the FIDC pump. The water company apparently awarded a mandate to Unibanco to structure a fund, according to the banker. An Unibanco official declined to comment on the matter.

The company, which provides service to over 6.5 million people and is wholly owned by the state of Rio Grande do Sul, is rated B2' on the local currency, global scale by Moody's.

In another public-service sector, transportation company Companhia Paulista de Trens Metropolitanos (CPTM) is planning to tap the FIDC market for future flows from ticket sales. The talk is that local shop Rio Bravo has clinched the mandate; officials from the investment bank could not be reached at press time.

The company operates commuter trains in greater Sao Paulo. Its rail lines span 270 kilometers, cutting across 22 municipalities, according to the company website. Roughly 1.25 million users ride CPTM's trains everyday. A handful of stations in the rail network link up to the city's metro.

Finally, outside the FIDC sector, a recently-closed asset-backed debenture for Caixa de Administracao da Divida Publica (Cadip) garnered interest among players for the unusual collateral backing the paper. The issuer recently priced a R$120 million, 1.5-year deal backed by renegotiated past-due taxes at 250 basis points over the local CDI rate, according to a source on the deal. Distribution of the paper closed late last month. The structuring agent was Oliveira Trust and lead manager was Banco do Rio Grade do Sul. Co-managers included Unibanco, Fator Bank, Banco ABC Brasil, and Banif.

The deal has been touted as the first to securitize restructured taxes in Brazil's market. The collateral is comprised of re-performing sales taxes that were previously in default. Cadip's primary business is managing the debt of the state of Rio Grande do Sul, which controls the company. The obligors in the pool - companies that pay taxes to Rio Grande do Sul - were drawn from a wide array of industries. That diversity of risk helped earn the deal a national scale rating of A3.br' and global-scale, local-currency rating of Ba3' from Moody's.

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