1. 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)

4. NEXT STEPS: BRAZILIAN FUTURE FLOWS MARKET

5. Securitization of future receivables under Brazilian Law
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. Securitization of future receivables under Brazilian Law - FIDCs
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. Securitization of future receivables under Brazilian Law - FIDCs
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 and its impact on securitization of future receivables
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. CVM Ruling No. 444/06 and its impact on securitization of future receivables
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 Ruling No. 444/06 and its impact on securitization of future receivables
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. CVM Ruling No. 444/06 and its impact on securitization of future receivables
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 future receivables of originators pertaining to the public sector – main legal aspects
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. Securitization of future receivables of originators pertaining to the public sector – main legal aspects
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. Case study: FIDC-NP CPTM
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 DTVM
Banco Standard de Investimentos
RATING AGENCY: Moody’s
TRUSTEE: Banco Bradesco
ACCOUNTING FIRM: KPMG
LAW FIRM: Pinheiro Neto Advogados

17. Case study: FIDC-NP CPTM
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 CPTM
PASSENGERS
Transportation
INVESTORS $
Senior Quotas
Future Receivables
C P T M
F I D C $
CPTM
CPP
Subordinated Quotas
Transfer
of Subordinated Quotas

19. Case study: FIDC-NP CPTM
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. Case study: FIDC-NP CPTM
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. Case study: FIDC-NP CPTM
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. José Carlos Junqueira S. Meirelles jcmeirelles@pinheironeto.com.br
SÃO PAULO
R. Hungria, 1.100
São Paulo - SP
Brasil
T (55-11) / F
RIO DE JANEIRO
Av.Nilo Peçanha, 11
Rio de Janeiro - RJ
Brasil
T (55-21) / F
BRASÍLIA
SCS, Quadra 1, Bloco I
Brasília – DF
Brasil
T (55-61) / F
José Carlos Junqueira S. Meirelles
T (55-11)
Enrico Jucá Bentivegna
T (55-11)