Pricing and Liquidity Confront ABS Pickup

Following a slowdown brought on by the credit crisis, Brazilian issuers and investors look to confront price and liquidity concerns and revive the market for structured finance. “When the Brazilian economy gets back to growing, securitization will definitely become more favored,” says Juan Pablo de Mollein, head of LatAm structured finance at S&P. He notes that S&P has taken relatively few negative rating actions in the asset class. New offerings, however, have taken a hit. Issuance of Fundos com Direito de investimento de Credito (FDIC), one of the most common structured products in Brazil, this year to date has been about BRL2.5bn, de Mollein says, along with BRL1.5bn for Certificados de Recebiveis Imobiliarios (CRI). This is well off the pace of last year’s total of BRL12bn for FDIC and BRL5bn for CRIs. Resolving a lack of consistency and clarity of pricing is one of the main challenges going forward, say market participants. “Basically, it’s a question of being a new market. With time it will improve,” says Morris Dayan, CFO at Banco Daycoval. Dayan notes that theoretically AAA rated structured products should price lower than most corporate bonds, while thus far they do not, due to investor unfamiliarity. This makes them attractive for investors, but less so for issuers, unless they need to diversify. Structures such as FDICs and CRIs have not been tested enough, he explains, especially in times of crisis. Better understanding of the products should boost liquidity, which was already marginal before the crisis. Dayan and de Mollein were speaking at the Third Brazilian Structured Finance Seminar, a LatinFinance event held Wednesday in Sao Paulo.