Skittishness over a looming invasion of Iraq is clobbering Brazil. In a move that is at very least indirectly linked to the escalating conflict, Brazil's Central Bank jacked up the benchmark interest rate by 100 basis points to 26.5% last week and lifted reserve requirements on demand deposits to 60% from 45%. That dashed hopes that rising investor comfort with the new presidential administration would swiftly bring down rates. The upshot for the securitization sector is that deal making is tougher.

"Why would anyone go into illiquid, unusual paper when treasuries are paying so much?" asked one market participant.

In addition, state company pension funds have not finished the management reshuffling that normally follows a change in government. Piled on top of this mess is the countdown to Carnival, which culminates the first week of March.

Yet a few securitizers are soldiering on. Two of these are hawking receivables investment funds, a novel structure known as FIDCs. BMG is understood to have already launched its R$100 million (US$28 million) FIDC backed by personal loans. A similar securitization of consumer loans, FMAX, has March 11 for the opening, which will be offered through an official announcement at 115% of the benchmark CDI rate. An interest-rate trigger has bumped up the subordinated piece of that deal to R$38 million (US$11 million) from an original R$36 million (US$10 million) (see ASR 2/10 p.23).

It may take some time to gauge market reaction to the FIDCs, since participants expect the deals to take up to a few months to sell in their entirety. Should those transactions go smoothly, one source said subprime consumer receivables might be one of the next targets, with the recovery rate tied to the returns on the shares.

In a more traditional securitization sector, Brazilian Securities has yet to close its R$7.59 million (US$2.1 million) senior piece of an MBS. Thanks to the deal's tiny size, a single investor may just carry it off, sources said. That lone white knight could turn out to be the Inter-American Investment Corporation (IAIC), an arm of the Inter-American Development Bank whose mandate is to promote the development of local capital markets. The IAIC has purchased and resold previous MBS from Brazilian Securities, said a source familiar with the securitizer.

Copyright 2003 Thomson Media Inc. All Rights Reserved.

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