NEW YORK (Standard & Poor's) Jan. 10, 2005--As Brazil's securitization market
eagerly awaits a rebound in its sluggish yet still dominant cross-border
sector, a favorable regulatory environment will strengthen and increase
issuance volume in the domestic market in 2005, say analysts at Standard &
Poor's Ratings Services.
Nearly US$2 billion has been issued domestically since early 2002, at
which time legislation to allow the securitization of Fundos de Investimento
em Dereitos Creditorios (FIDCs) was enacted. "Despite political and economic
turmoil in Brazil," said credit analyst Juan Pablo De Mollein, a director in
Standard & Poor's Structured Finance group, "the domestic market is showing
definite signs of sustained long-term growth."
Domestic securitizations in Brazil are issued mainly through two venues:
FIDCs and Real Estate Certificates (Certificados de Receiveis Imobiliarios, or
CRIs). "Prior to enactment of the FIDC regulation," Mr. De Mollein explained,
"the only way to securitize domestically was through the creation of
special-purpose entities (SPEs). But FIDCs, the market discovered, are more
cost-friendly than domestic SPEs because they have, among other benefits, more
tax advantages." Domestic issuances in 2004, combining FIDCs and CRIs, reached
32 transactions for a total of US$1.06 billion, almost a 40% spike over 2003's
24 transactions valued at US$800 million.
The CRI sector is not expected to expand in 2005, based on
slower-than-expected growth in 2004. Some developments may arise in the
partial credit guarantees and synthetic market if government-related
institutions increase their interest in this sector. Also, Standard & Poor's
sees great potential for servicer evaluation and related products in 2005.
Securitizations through FIDCs are growing at a fast pace, particularly
through the utility and consumer-lending sectors. In addition, the FIDC market
is diversifying, with auto loans, multi-asset vehicles, and even mortgages
showing potential. "Market sources have recently told Standard & Poor's that
there are efforts to develop the first RMBS in 2005," said Mr. De Mollein, who
also warns "regulatory changes may negatively affect the business."
Total Brazilian cross-border issuances decreased 58% from US$5.3 billion
in 2003 to US$2.24 billion in 2004; with the number of transactions declining
from 17 to 11, a 35% drop. These figures correspond to export and financial
future flow transactions and transactions insured for political risk. The
downslide resulted from exporters leaving the market due to high commodity
prices, the improved outlook on Brazil, and low interest rates in the
international markets. "Based on current trends for commodity prices, which
are still at high levels, it is very likely that exporters will not return to
the market with any great force in 2005," said credit analyst Diane Audino, a
director in Standard & Poor's Structured Finance Ratings group.
In 2003, Brazilian cross-border transactions represented 92%, measured by
volume, of total Latin American transactions. In 2004, that percentage dropped
to 74%, as expected. "We are expecting a slight increase in volume and number
of transactions for 2005, especially in the number of financial future flow
deals (diversified payment rights and credit card vouchers)." said Ms. Audino.
"As for composition of deals, we will see export future flows, financial
future flows, and PRI transactions, with a slightly higher concentration of
financial future flows."
The performance of transactions rated by Standard & Poor's is expected to
remain stable in 2005, reflecting the general economic conditions in Brazil.