brazilian securitization market an update summit on brazilian abs october 25-26, 2007

BRAZILIAN SECURITIZATION MARKET

An Update

Summit on Brazilian ABS

October 25-26, 2007

2

Recent developments and key figures

Source: Uqbar (The Brazilian Securitization Market: a Primer)

3

Recent developments and key figures

Source: Uqbar (The Brazilian Securitization Market: a Primer)

NEXT STEPS:

BRAZILIAN FUTURE FLOWS MARKET

5

Presentation Plan

Securitization of future receivables under Brazilian Law

CVM Ruling No. 444/06 and its impact on securitization of future receivables

Securitization of future receivables of originators pertaining to the public sector – main legal aspects

Case study: FIDC-NP CPTM

6

Securitization of future receivables under Brazilian Law

Definition: Receivables yet to be originated are used to back instruments placed to the market through an independent securitization vehicle

The assignment of future assets is permitted by the Brazilian Civil Code. The owner of the flow to be generated in the future may assign it to third parties

The securitization vehicle will acknowledge and accept the risk that the flow may not occur exactly as expected or may not materialize at all. In both cases, the assignment is deemed to be perfect (except in cases of willful misconduct or negligence)

Importance of an historical analysis to mitigate, to the fullest extent possible, the risk of the future flow

Great possibility of use in both local and cross-border transactions

7

Securitization of future receivables under Brazilian Law - FIDCs

Growing use of FIDCs as securitization vehicles in the context of domestic future flow securitization deals

Article 40, paragraph 8 of CVM Ruling No. 356/01:

“(…) the fund’s investments in warrants or commercial contracts for the purchase and sale of products, goods and/or services for future delivery or performance, as well as in instruments or certificates representing such contracts, shall be secured by a financial institution or insurance company, in the latter case as provided for in specific regulations issued by the Private Insurance Authority (Superintendência de Seguros Privados – SUSEP).”

8

Necessity of performance insurance or guarantee

Legal requirement imposed by the Brazilian Securities and Exchange Commission (CVM)

Aimed at protecting investors

Possibility of waiver by CVM in view of the characteristics of each securitization transaction

In this case, CVM does not grant automatic registration

Necessity of insurance / guarantee must be assessed by the market and the issuer

Possible impacts on the rating assigned to the FIDC


9


Risk mitigation factors in FIDCs backed by future receivables

Historic rate of receivables’ default

Analysis of the competition environment inherent to the originator’s market (v.g., mixed-capital and other public companies)

Events that may adversely affect the originator’s ability to compete and/or operate in its respective market

Enhancement mechanisms (overcollateralization)

10


CVM Ruling No. 444/06 defines non-standardized FIDCs (FIDCs não-padronizados)

Apart from future flow receivables, the following credit rights also fall within the scope of CVM Ruling 444/06:

overdue and not paid until the assignment thereof to FIDC-NP (distressed assets)

originated by public sector entities (Federal Government, States, Federal District, Municipalities and respective independent agencies and foundations)

resulting from judicial lawsuits in course, over which is pending litigation or which have been judicially attached or offered as collateral

which constitution or legal validity of the respective assignment to FIDC-NP is deemed a prevalent risk factor

originated by companies undergoing judicial or extrajudicial recovery procedures

other credit rights that do not fit the definition of Article 2º, I, of CVM Ruling No. 356/01

11


Investment in quotas issued by FIDCs-NP is exclusive to the so called “super-qualified investors”

Quotas must have a minimum issue value of R$ 1 million

Investors must invest a minimum of R$ 1 million

Requirement of filing of a legal opinion regarding the effectiveness of the origination and assignment of the receivables

12


CVM does not grant automatic registration to FIDC-NPs

Analysis period of at least 20 business days

Investors must state they are aware of:

the investment policy set forth in FIDC-NP’s bylaws

the risks inherent to their investment in FIDC-NP’s quotas

the possibility of losses resulting from the receivables’ features

13


Possibility of waiver of certain requirements by CVM, on a case by case basis, depending on each FIDC-NP’s features (v.g., rating and prospectus)

Existing FIDCs that qualify as FIDC-NPs must comply with the rules set forth by CVM Ruling No. 444/06

Funds for investment in FIDCs’ quotas (FIC-FIDCs) must also comply with CVM Ruling No. 444/06 in case of investments in quotas issued by FIDCs-NP

14


Securitization of receivables of originators pertaining to the public sector must comply with Brazilian Fiscal Accountability Law (Lei de Responsabilidade Fiscal)

Case-by-case compliance assessment

Assignment of receivables must not be characterized as a credit / loan transaction

In case the transaction is viewed as a credit transaction, CVM requires the prior authorization of the Ministry of Finance

True sale related aspects

Requirement of filing of an opinion issued by the competent governmental body (v.g., attorney’s office) regarding the origination and assignment of the receivables

15


Mitigation of risk of default / bankruptcy of the originator

Public companies generally cannot cease their activities (rendering of essential services)

Financial support by public shareholders

Questions regarding the sale of public assets

State cannot guarantee private investments

Generally, public originators cannot subscribe subordinated quotas

Utilization of proper entities for such purpose

16


ORIGINATOR: São Paulo State Metropolitan Train Company (Companhia Paulista de Trens Metropolitanos - CPTM)

VALUE: R$ 200 million (R$ 50 million represented by subordinated quotas)

MANAGER: BEM DTVM

UNDERWRITERS: Rio Bravo Investimentos DTVMBanco Standard de Investimentos

RATING AGENCY: Moody’s

TRUSTEE: Banco Bradesco

ACCOUNTING FIRM: KPMG

LAW FIRM: Pinheiro Neto Advogados

17


Receivables: future flow collections of tickets sold by CPTM in cash at 21 designated train stations

Maturity date: 84 months from the date of issuance of the quotas. The quotas will amortize in 72 monthly installments of principal and interest, after a 12-month grace period

Benchmark: IPCA + 9%

Subordinated quotas were subscribed by CPTM and immediately sold to Companhia Paulista de Parcerias (CPP), a public company specially set up to guarantee transactions entered into by the State of São Paulo

FIDC-NP was assigned an Aa3.br rating by Moody’s (equivalent to São Paulo State’s sub-sovereign rating)

18

Case study: FIDC-NP CPTMFIDC-NP CPTM

PASSENGERS

C P T M F I D C

INVESTORS

CPTMCPP

Future Receivable

s

$

Transportation

$

Senior Quotas

Subordinated Quotas

Transfer of Subordinated

Quotas

19


FIDC-NP CPTM was the first securitization deal in the Brazilian securities market backed by future flow state-owned assets

True sale aspects full compliance with Fiscal Accountability Law

Identification of the receivables sold to FIDC-NP CPTM

Securitization of all the cash flow in the designated stations during each month

Collection of funds by armoured cars

Funds deposited directly into FIDC-NP CPTM’s bank account

20


Characterization of CPTM as a public company legally appointed by the State of São Paulo for the rendering of railway transportation services

Not contractually appointed

Direct involvement of São Paulo State attorney’s office (including legal opinions)

Enhancement features:

Reserve Account

Fees and Expenses Reserve Account

Early redemption of the senior quotas in case FIDC-NP CPTM is early terminated

21


Risk mitigation factors:

Non-default of the receivables: CPTM’s passengers have to pay cash for the tickets, prior to boarding on the train

Considerable overcollateralization

The ability of CPTM to provide continued train transportation services (essential services)

The financial support provided by the State of São Paulo to CPTM

Legal impossibility of bankruptcy of CPTM

Use of proceeds: modernization and expansion of CPTM’s main rail lines and purchase of new, modern trains

22

SÃO PAULOR. Hungria, 1.100São Paulo - SP01455-000 BrasilT (55-11) 3247-8400 / F 3247-8600

RIO DE JANEIROAv.Nilo Peçanha, 11Rio de Janeiro - RJ20020-100 BrasilT (55-21) 2506-1600 / F 2506-1660

BRASÍLIASCS, Quadra 1, Bloco IBrasília – DF70304-900 BrasilT (55-61) 3312-9400 / F 3312-9444

www.pinheironeto.com.brwww.pinheironeto.com.br

[email protected]@pinheironeto.com.br

José Carlos Junqueira S. [email protected] (55-11) 3247-8546

Enrico Jucá [email protected] (55-11) 3247-8721

brazilian securitization market an update summit on brazilian abs october 25-26, 2007

Documents