While public servicer ratings have yet to materialize in Brazil, Standard & Poor's last week issued its first ranking for a custodian in that country. Banco Santander Brasil garnered an "Above Standard" grade for its custody and financial settlement services.

In Brazil, custodians play a key role in receivables investment funds (FIDCs), the vehicle of choice for domestic securitization. A custodian's main function is to verify asset eligibility for a fund, often acting as the backup servicer in a deal, with the originator as the primary servicer, according to a report by Fitch Ratings. A custodian also typically directs the fund's assets, including making share distributions to the investors from the collections on the pool.

The other main participants in an FIDC are the fund manager, loosely akin to a trustee in a more traditional securitization, and the primary servicer. The evaluation that S&P has provided on Banco Santander is principally for safekeeping and settlement activities that the bank provides outside the FIDC sector, such as those for pension funds and mutual funds. The evaluation might have its uses for investors in the FIDC sector, but its application might be somewhat limited.

"In this evaluation we review mainly the custodian and settlement activities, we weren't getting into asset-specific FIDCs," said Pedro Gazoni, an associate at S&P. "But if the custodian has the data systems, good monitoring, and both internal and external auditing procedures, then you have a base" for investors.

Officials at both Moody's Investors Service and Fitch said they had no plans to issue public custodian evaluations. Because of the way responsibilities are arranged in an FIDC, Moody's Senior Analyst Brigitte Posch said that the agency could eventually issue evaluations on the master servicing quality of a custodian, just as they rate servicers in other markets. "We would rate that part of the what the custodian does," Posch said.

Fitch also expects servicer ratings to develop in the medium-to-long term, according to Director Jayme Bartling. S&P's Gazoni said the agency sees potential for servicer ratings as well.

(c) 2005 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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