BRAZILIAN SECURITIZATION MARKET An Update Summit on Brazilian ABS October 25-26, 2007

Recent developments and key figures Source: Uqbar (The Brazilian Securitization Market: a Primer)

Recent developments and key figures Source: Uqbar (The Brazilian Securitization Market: a Primer)

NEXT STEPS: BRAZILIAN FUTURE FLOWS MARKET

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

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

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).”

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

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)

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

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

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

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

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

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

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

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)

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

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

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

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

José Carlos Junqueira S. Meirelles jcmeirelles@pinheironeto.com.br SÃO PAULO R. Hungria, 1.100 São Paulo - SP 01455-000 Brasil T (55-11) 3247-8400 / F 3247-8600 RIO DE JANEIRO Av.Nilo Peçanha, 11 Rio de Janeiro - RJ 20020-100 Brasil T (55-21) 2506-1600 / F 2506-1660 BRASÍLIA SCS, Quadra 1, Bloco I Brasília – DF 70304-900 Brasil T (55-61) 3312-9400 / F 3312-9444 José Carlos Junqueira S. Meirelles jcmeirelles@pinheironeto.com.br T (55-11) 3247-8546 Enrico Jucá Bentivegna enrico@pinheironeto.com.br T (55-11) 3247-8721 www.pinheironeto.com.br pna@pinheironeto.com.br