Giving a leg-up to Brazil’s real estate market, the Inter-American Development Bank recently closed a $75 million warehouse loan facility to local securitizing agent Brazilian Securities.
The loan has a seven-year maturity and charges a bi-annual floating rate benchmarked to Libor. Precise terms were undisclosed.
“This is basically to support the issuance of CRIs (local real estate securitizations) in Brazil,” said Daniela Carrera, an investment officer with the IDB. “An eligibility criteria was set up so [Brazilian Securities] can buy and securitize different kinds of portfolios, whether they’re commercial or residential.”
Brazilian Securities will draw down the facility to purchase receivables, denominated in local currency, and will securitize them when it has achieved a specified critical mass. “Using mortgage receivables as collateral for loans from international institutions is a rare thing in Latin America,” said Allen Moreland, counsel with Hunton & Williams, which advised the IDB on the deal on the cross-border front. Pinheiro Neto provided domestic counsel.
The volume of warehoused mortgages needed for an initial tap could potentially be as low as $7 million, translating to R$15.4 million in local currency. While remarkably low by international standards, that figure is good deal higher than the typical CRI backed by residential mortgages, which seldom exceed R$10 million.
The higher volume, as well as more disclosure to Brazilian regulators, would be necessary to broaden the pool of buyers and attract, in particular, retail investors, Carrera said. It was only this year that regulations came into effect facilitating the purchase of CRIs by retail investors and sweetening the product with tax incentives.
Since 2000, Brazilian Securities has issued scores of securitized real estate deals for a total R$1.2 billion. The pace picked up last year, which alone accounted for R$1 billion.
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