Latin Finance - April 2008 - 5

Structured Finance Going the DPR Route Brazilian banks are taking shelter from the cross-border storm by privately placing bonds backed by future foreign payment receivables, or DPRs. Bankers and lawyers familiar with the structure say other large Brazilian financial institutions are waiting in the wings to bring similar transactions. In the first week of March, Bradesco placed $500 million in 2014 notes at Libor plus 60 basis points via Bank of Tokyo Mitsubishi. Days earlier, Banco do Brasil offered $250 million in 2014 notes at 55 basis points over Libor in a transaction managed by BNP Paribas. Brazilian banks are no strangers to this type of transaction when the markets are down. Bradesco placed similar $400 million and $500 million transactions in August and November, respectively. For Banco do Brasil, this offering marked its first since 2003. Elsewhere in Brazil, mid-cap Banco BMG plans to sell up to 500 million reais of shares in a receivables investment fund, or FIDC. A 4-year tranche of up to 415 million reais in senior shares will pay 108% of DI. There will also be a 4-year subordinated tranche for up to 85 million reais. The shares will be issued by the BMG FIDC VII fund and backed by cash flow from repayment of personal loans by BMG to government employees and non-public service pensioners. month in São Paulo. An issuance level close to last year’s would be a good result, but delegates predict another decline. “This year will be very challenging,” says Jayme Bartling, senior director of structured finance at Fitch. Total Brazil securitization volume was $3.1 billion in 2007, down from $5.3 billion in 2006, according to Fitch. This year’s issuance is set to come from FIDCs, CRIs, MBS, securitization of personal loans, auto loans and trade receivables. There may also be some NPL activity and agricultural asset structures. And further tranching of transactions is anticipated to provide different investors what they need. However, the market is constrained by an unsophisticated investor base, regulation, lack of government sponsorship and no standardization. Despite the financing opportunity that presents itself from shuttered bond and equity markets, bankers are cautious on the outlook. “It will be a tough year,” says Brigitte Posch, managing director at Deutsche Bank. Unsophisticated local investors are losing out to overseas markets, where the buyside is willing to do the credit work to take lower rated exposure, she adds. LF Mexicans Reopen Local MBS In the second week of March, two banks and a sofol raised a combined $438 million via MBS, giving that local market, which had been dormant since December, a needed jolt. Su Casita issued 1.29 billion pesos in bonds backed by construction bridge loans in a transaction that included a subordinated tranche. The 6-year senior notes, worth 1.13 billion pesos, were priced at TIIE plus 120 basis points, while a subordinated tranche with the same tenor but worth 197 million pesos, came at TIIE plus 60 basis points. Scotia meanwhile placed 2.49 billion pesos in 9.15% of 2028 notes backed by a collection of mortgages issued by local banks, according to Dealogic. And BBVA Bancomer landed 1.48 billion pesos in 2028 at 8.85% backed by residential mortgages issued by the financial institution in various states. In addition, state-run lender Instituto Fonacot priced 2 billion pesos in 2011 consumer loan-backed bonds at 3 basis points over 28-day TIIE. Demand for the AAA deal was 5 billion pesos, according to a banker on it. A pool of loans made to Mexican workers to purchase consumer goods, such as appliances, backs the notes. The sale is the first from a 7.65 billion peso 5-year shelf. Scotia led. No Rose-Colored Shades Brazil’s markets are in for a trying 2008 after a decline last year, according to delegates at the LatinFinance Brazilian Structured Finance and Securitization seminar held last April 2008 LATINFINANCE 5

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Latin Finance - April 2008

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