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Agro Loan Securitizatons How can the Capital Markets Finance Brazilian Agriculture. Bernardo Costa Associate Director Fitch Ratings - International Structured Finance (P) 312-606-3315 bernardo.costa@fitchratings.com October 08, 2008. Cedula de Produto Rural: CPR .
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Agro Loan SecuritizatonsHow can the Capital Markets Finance Brazilian Agriculture Bernardo Costa Associate Director Fitch Ratings - International Structured Finance (P) 312-606-3315 bernardo.costa@fitchratings.com October 08, 2008
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
Financial CPR Flow www.fitchratings.com
Financial CPR Volumes Issued www.fitchratings.com
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
CDCA Flow www.fitchratings.com
CDCA Volume Issued www.fitchratings.com
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
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
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? www.fitchratings.com
Agro Loan FIDC Structure www.fitchratings.com
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 www.fitchratings.com