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Brazil’s FIDC market expands to absorb Sao Paulo commuters

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Train commuters in Brazil’s megalopolis of Sao Paulo will shortly be connected to the country’s ever-expanding world of structured finance. A receivable investment fund (FIDC) from Companhia Paulista de Trens Metropolitanos is currently in transit, timed to launch within a month, according to Marcelo Michalua, a director with Rio Bravo Investimentos, the deal’s structuring agent.

Banco Bradesco is the trustee and master servicer, while Pinheiro Neto provided legal counsel. Moody’s Investors Service has rated the transaction Aa3.br’ on the national scale and Ba2′ on the local currency, global scale.

Backed by future collections of certain train tickets and bearing a seven-year maturity, the transaction crawled through the structuring process, with the mandate reportedly awarded to Rio Bravo in July 2005 (ASR, 11/15/06).

Deal complexity

Rio Bravo’s Michalua chalked up the slow pace to the complexity of the structure and novelty of the asset type. “It’s sort of a project finance type of FIDC,” he said. “We tested everything [including] the track record of each station” contributing receivables to the fund. The structure, Michalua added, ensures there is no recourse to the originator, a rarity in the domestic marketplace of future flow transactions, according to Sao Paulo-based sources.

The deal draws on receivables from 21 stations, some of which offer transfers to Sao Paulo’s expansive subway system. More than 1.4 million commuters in greater Sao Paulo ride CPTM’s rail network.

Clued in to the strong – and by some accounts, growing – appetite from hedge funds for yieldy reais deals, Rio Bravo will shop the deal to foreign investors, according to Michalua.

While foreign buysiders have already bought into FIDCs, CPTM’s transaction might provide a good litmus test of their comfort with longer-dated funds, as the typical deals sold to offshore investors so far had maturities that hover at three years. CPTM’s fund will be priced against a consumer inflation-indexed local treasury known as the NTN-B. The particular benchmark will be the NTN-B due in 2011 since the fund has a comparable duration of roughly four years.

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