Presidential elections in Brazil are coming up in October, but the latest figures suggest that issuance of receivable investment funds (FIDCs) isn't destined to slow down from last year. Indeed, it could pick up.
"It's more active than you'd expect, it being an election year," said Jayme Bartling, director of structured finance at Fitch Ratings in Brazil. Some R$2.1 billion ($992 million) of the senior tranches of FIDCs were registered with Brazil's securities regulator in the first quarter.
Securitization players use fund registration as a rough proxy for issuance, since tracking the exact volume of placements is nearly impossible in the FIDC market. A fund administrator can begin distributing shares once the fund is registered. While some sell the shares all at once, the process can take weeks or even months.
Among the quarter's more noteworthy developments, Brazilian water company Companhia de Saneamento Basico do Estado de Sao Paulo (Sabesp) sold R$263 million in shares of an FIDC backed by trade receivables. With a maturity of 60 months, the transaction priced at 70 basis points over CDI, sharply tighter than the 125-basis-point guidance that kicked off the bookbuilding (ASR 2/13/06), according to a source on the deal. Fitch rated the R$250 million in senior shares AA+(bra)' on the national scale, a good four notches above the corporate. "It priced tighter than the debentures," Bartling said. "Investors are starting to understand the risk-and-return [profile of ABS]."
What made the transaction's performance particularly remarkable was the fact that the fund's participants had seemed less than confident that market investors would bite. In fact, the lead structurer, Banco Votorantim; fund manager, Caixa Economica Federal; and custodian, Banco do Brasil, all committed themselves to purchasing unsold shares. With the bid to offer ratio hitting three times, they didn't have to.
Future bills to the company's residential, commercial and industrial clients backed the deal. Sabesp provides water services to 368 municipalities in the Sao Paulo State.
Also in the first quarter, power company Cemig shed some non-performing assets into an FIDC. Sized at R$900 million, the senior shares priced at 1.7% of CDI. The final maturity is slightly under ten years and the rating is A-(bra)' by Fitch, on the national scale. The underlying collateral is comprised of funds the state of Minas Gerais has owed the company for some time. This liability stems from credit Cemig earned with the state as a power company with above-average efficiency. Investors in the shares have recourse to Cemig, which placed the deal primarily to dump the assets from its balance sheet, according to a source close to the deal.
At the very end of the first quarter, G Brasil Participacoes (Grupo Brasil) began distributing shares in a trade receivables FIDC. By last week, the fund had sold the entire R$50 million batch of an initial tap, at 110% of CDI, said a source on the deal. Sized at R$42.5 million, the senior shares have a 35-month maturity and are rated Aaa.br' by Moody's Investors Service. The R$7.5 million in subordinated shares is unrated. Gainvest do Brasil Asset Management is the structurer on the deal.
The deal is backed by the sales of four auto suppliers that form part of the Grupo Brasil conglomerate (ASR 03/27/06). The remainder of the R$100 million program is slated to hit the market within the next month, the source said.
Meanwhile, joint arrangers Gainvest and Banco Bradesco last week registered an FIDC for Marcopolo, a Brazilian company that manufactures bus bodies, according to a source close to the transaction. Backed by vehicle loans from Marcopolo's own bank, Banco Moneo, the FIDC is planned at R$120 million, with a senior tranche of R$96 million. The maturity is 60 months and launch is timed for the second week of May. Fitch has rated the senior shares AA-(bra)' on the national scale.
Finally, sugar and alcohol producer Usaciga is in the market with a R$50 million FIDC, split between R$42.5 million in senior shares and R$34.4 million in subordinated shares. Fitch and local agency Austin Rating graded the senior tranche BBB(bra)' and AA-' on their respective national scales. The deal has a 90-month maturity, with a 13-month grace period. Backing the transaction are sales of electricity from a plant powered by the residual fuels generated during the processing of sugarcane. Eletrobras will purchase the energy under contract. As the power plant involved in the transaction has yet to be built, the deal relies on a completion bond by J Malucelli, which is rated A-' on Fitch's national scale. The insurer is also providing a performance bond for R$26 million.
Pricing on the deal will be tied to the IGPM inflation index.
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