Drawn by a singular chance to swallow Nestle risk, Brazilian investors munched down a R$45 million (US$12.6 million) deal backed by a leasing agreement with the global food giant's signature. Led by Santander, the transaction was upsized a slight R$2.4 million and yielded 12.5% over the IGPM inflation index at the Jan. 27 close. Pricing matched a comparable real-estate receivables deal issued in September (see ASR 9/16/03), though the ratings on the most recent deal were higher and the size, smaller.

"There was less appetite for IGPM now than a few months ago," said Ricardo Leoni, an associate at the underwriting bank. A recovery in the local currency against the dollar over the past several weeks has pushed investors away from IGPM spread products, which are most attractive when depreciation risk feeds into inflation worries.

The collateral is a mix of credits, rights and residual compensation amounts stipulated in a quasi-leasing agreement known as built-to-suit. Nestle Brazil, Walter Torre Junior Construtora (WT) and the effective SPV - Walter Torre NSBC - are signatories on the agreement. Nestle is disbursing monthly payments to WT for rebuilding a distribution center leveled by an accidental fire. The SPV will trap these flows, which last 12.5 years, the maturity of the transaction.

Besides the diminished taste for IGPM deals, the transaction met with indifference from leading state-linked pension funds like Eletros and Petros. These investors are ignoring untested and long-term investments until the new government decides who will make up their management teams going forward. That has held back domestic deals in general.

"We sold it to other pension funds; they had room," Leoni said. He added that high-net worth individuals, lured to the monthly frequency of payments, ate up a piece.

Interestingly, there was a two-notch difference between the deal's two ratings. Standard & Poor's rated it a AAA' on the national scale, while stand-alone local agency Atlantic Rating has the deal at AA.'

Tozzini, Freire, Teixeira e Silva is legal counsel on transaction.

Nestle Brazil is unrated, though S&P has indicated that its finances are ironclad. The parent company has in the past extended financial and operational support to its Brazilian subsidiary.

Leoni said Santander has another real-estate receivables deal in the works. If it gels, the transaction could come out as soon as August and hit R$100 million.

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