Agro Loan Securitizatons How can the Capital Markets Finance Brazilian Agriculture Bernardo Costa...
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Transcript of Agro Loan Securitizatons How can the Capital Markets Finance Brazilian Agriculture Bernardo Costa...
Agro Loan SecuritizatonsHow can the Capital Markets Finance Brazilian Agriculture
Bernardo Costa
Associate Director
Fitch Ratings - International Structured Finance
(P) 312-606-3315
October 08, 2008
www.fitchratings.com 2
Cedula de Produto Rural: CPR
> Authorized by Law 8.929 of 1994 (modified by 10.200 of 2001)
> May be Issued by Producers, Cooperatives and Rural Associations under two types
– Financial: a bond/security paid through Price x Quantity
– Physical: Like a Futures/Forward Contract paid through delivery
> Needs to be Registered at a Notary Republic
> First Lien Pledge on Product being Financed
– Article 17: False Statements or Actions may cause criminal prosecution
> Including Product is already in lien of other debt
> Fiscal responsibilities
– Article 18: Products cannot be seized by other issuer creditors
www.fitchratings.com 3
Financial CPR Flow
www.fitchratings.com 4
Financial CPR Volumes Issued
(As of October 2, 1998)Sugar CaneEthanol Sugar Cattle Soybeans Coffee
2001 0.008661 0 0 0.410287 0.280623 0.073903
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2001 2002 2003 2004 2005 2006 2007 2008
Sugar Cane Ethanol Sugar Cattle Soybeans Coffee Other(%)
Financial CPR
(New Sub Head123233)
www.fitchratings.com 5
Certificado de Direitos Creditorios do Agronegocio (CDCA)
> Authorized by Law 11.076 of 2004
> Debt Securities representing promises of payment in cash backed by receivables
originated through rural activities (mostly CPRs)
> Pledge on Product being Financed
– Products cannot be seized by other issuer creditors
> Custodian is in charge of servicing receivables
> Registered at Under the Counter Exchanges (BM&F + Cetip)
> Cannot issue more debt than amount of receivables
www.fitchratings.com 6
CDCA Flow
www.fitchratings.com 7
CDCA Volume Issued
-
20
40
60
80
100
120
140
160
Nov-05 Feb-06 May-06 Aug-06 Nov-06 Feb-07 May-07 Aug-07 Nov-07 Feb-08 May-08 Aug-08
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
Numer of CDCAs (Left) Volume Issued (Right)
CDCA Evolution
Source: CETIP
(N#) (BRL 000)
www.fitchratings.com 8
Analyzing CPRs and CDCAs = What to Look for…> CPRs and CDCAs don’t have a maximum term
– They can finance more than one harvest (recovery through product only for first harvest)
> Basis Risk
– Accrue at Inflation Indexes, Exchange Rate, Interbank Rate
– Spot Prices for Sugar Cane, Cattle, Soybeans, etc…
> How are you assigning value to your Collateral?
– Receivables + Take Out Provider = 100% or
– Debt or Receivables = Take Out Provider?
> Surveillance Companies
– Somebody has to make sure the collateral is still there…
www.fitchratings.com 9
Financing Agriculture Through Capital Markets
> Historically, the credit markets haven’t really financed agriculture…
– Credit Analysis
– Low Individual Transaction Volumes
– Concentration!!!!
> That’s where the Investment Banker Comes In…
– Create a different vehicle, of larger volume
– Diversified Producers (Management Issues)
– Diversified Sectors (Price Volatility Issues)
– Diversified Regions (Natural Causes Issues)
www.fitchratings.com 10
Fundos de Investimento em Direitos Creditorios - FIDC
> Ruled by CVM (SEC) Instruction 356 of 2003 (altered by 442 of 2006)
– Main Vehicle used for Securitization in Brazil
– Follows European Model – True Sale through Funds and not through Trusts
> Issuance Highlights
– Union National Agro+ FIDC Financeiros Agropecuarios (BRL500 MM)
– Vision Brazil Agro FIDC MultiCredito (BRL200 MM)
– Banif FIDC Agro I (BRL82.5 MM)
Now How do These
Transactions Work?
Volume Issued in FIDC Notes
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2003 2004 2005 2006 2007 2008
BEL(
Mill
ion)
www.fitchratings.com 11
Agro Loan FIDC Structure
www.fitchratings.com 12
Vision Brazil FIDC Agro - MultiCredito
Senior Issuance: BRL100 MM ‘AA(bra)’ CDI + 1.78%
Mezzanine Issuance: BRL 50 MM ‘BBB-(bra)’ CDI + 7.3%
Junior Issuance: BRL50 MM ‘CCC(bra)’ Equity Piece
> Max Individual Concentration = 7.5%
> Sector Concentration Criteria
– Max Sugar & Ethanol 75%
– Min Cattle 25%
– Max State 70%
> Senior Default Rate: 75% with 30% Recovery
> Mezzanine Default Rate: 35% with 30% Recovery
Fitch Ratings
www.fitchratings.com
www.fitchratings.com.br
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