It might not be everywhere you want to be, but Latin American deal of the year Visanet certainly turned out to be a rewarding place for a number of players. The Brazilian deal came with the kind of features any ABS enthusiast could admire: a new type of issuer, a well-conceived structure, enviable pricing, and behind it all, a cadre of big names. Led by Merrill Lynch, the US$500 million securitization of credit card vouchers even offered some drama in the days ahead of pricing. Virtually on the eve of launch, one of the originator's shareholders, ABN Amro, backed out. Sources said the Dutch bank's head office wanted to pursue independent funding for Brazil. But exiting so close to pricing could have disrupted the transaction. In the end, it did not.
"It was a credit decision by ABN," said a source familiar with the deal. "The structure already provided for the exit of a shareholder."
Besides that, investors felt comfortable with the two main shareholder-participants, Banco do Brasil and Banco Bradesco, respectively the country's largest state and private bank. "These are important banks and we didn't feel as vulnerable as doing [a deal] with a single bank," said one U.S. fund manager. "We'd do it all over again, maybe even a little tighter."
That degree of loyalty speaks volumes, considering Visanet had already priced as the tightest cross-border transaction ever in the future flows asset class, according to sources. It was also the longest. With a legal final maturity of eight years - as opposed to the typical seven - the deal managed a spread of 350 basis points over Treasurys, appreciably tighter than the other unwrapped Brazilian issues that hit the market around this time.
Visanet was two-times oversubscribed and buyers descended from every corner of this market. High-grade, emerging-market, asset-backed and retail investors bought in, according to sources.
On the cross-border side, Dewey Ballantine was legal counsel for Merrill, while Clifford Chance advised Visanet. For domestic law, Pinheiro Neto was counsel on the entire deal. Machado, Meyer, Sendacz e Opice advised the issuer as well.
Moody's Investors Service, Standard & Poor's, and Fitch Ratings gave the deal Baa1,' BBB+' and BBB+,' respectively. At S&P, Visanet now stands as the highest-rated Latin securitization. Fitch maintains one other comparable at this notch, while Moody's has peer deals rated even higher.
Visanet is the exclusive processor of Visa credit and debit card vouchers in Brazil. ABN Amro holds 14% of the company; Visa International, 10%; Banco do Brasil, 32%; Bradesco, 39%, and other banks, 5%. Banco do Brasil and Bradesco were the only participants in the deal, receiving 44.6% and 55.4% of the proceeds, respectively. Visanet itself did not receive proceeds. "That way it was different than a typical securitization," said Enrico Bentivegna, senior associate at Pinheiro Neto.
With a few exceptions, the Visanet model is unique, and it was the first company of its kind to tap bondholders. Whereas previous credit card deals in emerging markets were from issuers that compete for the acquisition of vouchers, this deal comes from a monopoly. "We saw this as an unusual credit strength," said Kevin Kime, a director of emerging markets at S&P.
Apart from ABN, the smaller shareholders didn't participate because the cost of disclosure outweighed the tiny portion each would have received, a source said. Visa International had no need for the proceeds; this also held true for the originator itself. "Visanet's a cash cow. It consistently distributes dividends," said Michael Lucente, director of Latin American structured finance at Merrill. A regular fee that the beneficiary banks are paying Visanet is distributed to all shareholders as dividends. The company has paid out roughly US$130 million of dividends over the past three years.
In another show of support from Banco do Brasil and Bradesco, the banks have put up their shares in Visanet against a missed payment, a source said. If one of the banks makes a payment for the other, it can seize a share of its partner's stake in the company.
For Visanet, the lure of the market was two-fold. "We got good value for the shareholders and created a market for merchants who accept Visa cards," said Andre Reginato, a consultant at Dikaios, which advised Visanet on the transaction. While the deal took longer to execute than initially expected, the issuer was pleased with the results, he said.
Beginning in the months before Brazil's October 2002 elections, foreign investors turned their backs on the country, as speculation mounted that favored candidate Luis Inacio Lula da Silva would halt debt payments. From September 2002 through much of the first quarter of the following year, issuers from the country were frozen out. The thaw came a few months into the new administration as investors' villainous image of Lula proved to be vastly exaggerated. Pricing on July 2, Visanet joined a wave of pent-up structured issuance out of the country.
Banco do Brasil was the first issuer under Lula to hit the dollar market with a structured deal. In March, the bank floated a US$120 million transaction backed by diversified payment rights (DPRs). Its return a few months later via Visanet was an astute move, according to company officials. Compared to funding alternatives, pricing was favorable "especially if we take into account that the coupon was fixed [while] the benchmark Treasury was trading [at exceptional lows]," said the bank's senior vice president of international business, Rossano Maranhao, in an e-mail message.
Collateral for the Visanet transaction is comprised of existing and future receivables originated by Visanet. Established in the Cayman Islands, the SPV is called Brazilian Merchant Voucher Receivables Limited 2003-1. The company processes more than 2.2 million transactions a day on average and its reach extends to 4,200 Brazilian cities. Over the last six years, it has elbowed aside MasterCard as the sector leader, upping its market share to 47% by the end of 2002. Merchant sales volume hit US$14.4 billion last year.
Visanet will not be visiting the market again in the foreseeable future. Citibank is understood to be pulling a similar transaction together for Redecard, which is the MasterCard version of Visanet.
Collateral: Visa vouchers
Lead: Merrill Lynch
Maturity: 8 yr. Final
Cross-border counsel: Clifford Chance(issuer); Dewey Ballantine (lead)
Domestic counsel: Pinheiro Neto (entire deal); Machado, Meyer, Sendacz e Opice (issuer)