Word has spread fast about credit receivable funds (FIDCs) in Brazil's domestic market, and the newfangled vehicle has started to attract big players. Banco Santander and Banco Itau have teamed up to develop this structure for Braskem, a leading petrochemical company, and Parmalat Brasil. Neither the banks nor the originators have participated in an FIDC before.

The structure combines features of a typical SPV and an investment fund. For issuers, the appeal of FIDCs over a traditional trust is a much lighter tax treatment. The Braskem transaction epitomizes this preference, with the company earmarking the proceeds of its R$200 million (US$68 million) FIDC to retire a heavily taxed debenture issued in 2000 under an old-fashioned trust. "That structure was almost prohibitive in terms of tax costs," said Ricardo Leoni, vice president of Banco Santander in Brazil. Amounting to R$150 million (US$51 million) at issuance, that debenture raised funds for three of the six companies that eventually merged to form Braskem. It matures in May of next year.

Santander structured the Braskem FIDC and is jointly marketing the transaction with Banco Itau. Moody's Investors Service has rated the senior shares of the transaction Aaa.br' on the national scale and Baa2' on the local currency, global scale. Backing the deal are trade receivables generated by a vast pool of around 2,400 second- and third-generation companies that purchase Braskem's products. No single client accounts for more than 7% of the pool, a major selling point for the transaction, according to Leoni.

This FIDC will be a closed-end fund. It is currently being marketed to institutional investors, with retail investors ineligible to participate. Banco Itau will be the servicer.

In a report, Moody's cited a 12% minimum credit enhancement, the high quality of the assets and rigorous eligibility criteria as underpinning the strong ratings. All the clients in the pool passed muster with KPMG, which performed a study on their past performance as Braskem clients.

The company is the largest petrochemical producer in Latin America. Revenue totaled R$8.9 billion in 2002, according to the company Web site. One of the leading business lines is thermoplastics.

Meanwhile, global milkmaid Parmalat has an FIDC in the works for up to R$150 million (US$51 million). This transaction flips the roles played by Itau and Santander in the Braskem fund. Itau structured the Parmalat deal, and is pairing with Santander in the placement. There's another nuance as well, since Itau BBA - the capital markets unit - is handling this transaction, while the asset management team at Banco Itau is dealing with Braskem. Going forward, Itau BBA will be reportedly handling all FIDC transactions.

As in the Braskem fund, the risk with the Parmalat deal lies with the company's clients, given that the underlying assets are trade receivabes. Rating the transaction brAAAf' on the national scale, Standard & Poor's cited a diversified portfolio of clients "in terms of volume of purchases, geographic location, number of stores, payment history, credit limit and economic and financial indices." Deloitte & Touche assessed the suitability of clients for the deal. In order to ensure pool diversity, the structure has a 5% cap on the receivables generated by a single client.

A floor of 12% has been set on the enhancement from subordinated shares, although S&P said in a report that the initial subordination would be 15%. The roadshow for the transaction was earlier this month. It has a legal final maturity of three years.

It comes as no surprise that FIDCs are heating up. For much of this year, towering interest rates kept the sector in check. Investors were understandably loath to invest in something new if treasuries were offering sky-high yields.

But now that rates have come down, the buyside is singing a different tune. "The opportunity cost for investors has gone up," Leoni said. Six months ago they could have bought government paper at 150 basis points over the CDI benchmark rate. Now they're at a much cooler 20 basis points.


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