Since its creation in 1997, Brazil's first and only securitization company, Companhia Brasileria de Securitizacao (Cibrasec), was designed to be the catalyst for the country's mortgage market.

Fashioned after such successful models as Fannie Mae, and with major players such as ABN Amro, Citibank and the International Finance Corp. (IFC) among its controlling partners, Cibrasec seemed destined for success.

The company's main goal is to promote the development of a secondary mortgage market in Brazil, primarily acting as intermediary between originators and investors. The company acquires housing and real estate credits from financial institutions and arranges for their funding through the issuance of CRIs (certificados de recebiveis imobiliarios or mortgage-backed securities).

Yet, with a meagre $12 million issued in the local market so far and little hope of an international transaction in the near future, the company is having a hard time meeting expectations, with investors yet to become comfortable with the new instrument.

In addition, the primary mortgage market has been dampened down by the Russian and Asian crises as well as the Brazilian devaluation of last year.

In this context, the fact that Standard & Poor's recently assigned a B+ rating to Cibrasec is undoubtedly good news.

"The rating - a key requirement if the company wishes to launch cross-border deals - is underpinned by the company's limited exposure to credit and market risks, its low leverage and position as the only securitization company operating in Brazil," explained Jose Ramon Tora, director of structured finance at S&P in New York. "Cibrasec also has a well-defined strategy including good underwriting policies and shareholders and a management team committed to the company's growth and development."

Partly offsetting these positive elements are Cibrasec's short track record and low business volume as well as the fact that its earnings still depend upon investment income, rather than income from core business. According to S&P, the company's main challenge is the development of a secondary market for housing finance in a country where the primary market is underdeveloped.

Despite all these factors, the agency considers that the outlook for the future of Cibrasec is positive. "The company has set up a good strategy for the future, including working closely with originators to set up standardized criteria for underwriting mortgages and ultimately contributing to improving its underwriting standards," said Tora.

"It is also working to promote a change in current market practices where developers rather than financial institutions are providing most of the financing for housing and promoting institutional investors' interest in MBS," Tora added.

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