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Agro Loan Securitizatons How can the Capital Markets Finance Brazilian Agriculture Bernardo Costa Associate Director Fitch Ratings - International Structured.

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Presentation on theme: "Agro Loan Securitizatons How can the Capital Markets Finance Brazilian Agriculture Bernardo Costa Associate Director Fitch Ratings - International Structured."— Presentation transcript:

1 Agro Loan Securitizatons How can the Capital Markets Finance Brazilian Agriculture Bernardo Costa Associate Director Fitch Ratings - International Structured Finance (P) October 08, 2008

2 Cedula de Produto Rural: CPR >Authorized by Law of 1994 (modified by 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

3 Financial CPR Flow

4 Financial CPR Volumes Issued

5 Certificado de Direitos Creditorios do Agronegocio (CDCA) >Authorized by Law 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

6 CDCA Flow

7 CDCA Volume Issued

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…

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)

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?

11 Agro Loan FIDC Structure

12 Vision Brazil FIDC Agro - MultiCredito Senior Issuance: BRL100 MM ‘AA(bra)’CDI % 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 State70% >Senior Default Rate:75% with 30% Recovery >Mezzanine Default Rate:35% with 30% Recovery

13 Fitch Ratings New York One State Street Plaza New York, NY FITCH Fitch Ratings Algorithmics Fitch Training Chicago 70 West Madison Street Chicago, IL FITCH São Paulo Al. Bela Cintra, 904 4th Floor São Paulo, SP Rio de Janeiro Av. Rio Branco, 89 13th Floor Rio de Janeiro, RJ


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