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Rating Action:

Moody's assigns definitive ratings to shares of Chemical X - FIDC Indústria Petroquímica

 The document has been translated in other languages

13 Jun 2018

BRL 635.6 million of senior shares and BRL 50.4 million of subordinate mezzanine shares rated

Sao Paulo, June 13, 2018 -- Moody's America Latina has assigned definitive ratings of Baa3 (sf) (Global Scale, Local Currency) and Aaa.br (sf) (Brazilian National Scale) to the senior shares, and B2 (sf) (Global Scale, Local Currency) and Ba1.br (sf) (Brazilian National Scale) to the subordinate mezzanine shares issued by Chemical X - FIDC Indústria Petroquímica, a revolving securitization backed by a pool of trade receivables originated by Braskem S.A. (Ba1 stable).

The complete rating actions are as follows:

Issuer: Chemical X - FIDC Indústria Petroquímica (Chemical X - FIDC)

R$ 635,600,000, CDI + 0.85%, Senior Shares, Definitive Ratings Assigned Baa3 (sf) (Global Scale, Local Currency) and Aaa.br (sf) (Brazilian National Scale)

R$ 50,400,000, CDI + 2.40%, Subordinated Mezzanine Shares, Definitive Ratings Assigned B2 (sf) (Global Scale, Local Currency) and Ba1.br (sf) (Brazilian National Scale)

RATINGS RATIONALE

Chemical X - FIDC is a close-ended FIDC and has a final legal maturity of 60 months from closing. Moody's assigned definitive ratings to the senior shares and to the mezzanine shares.

Moody's bases the ratings on the following factors:

- Credit enhancement in the form of subordination for senior shares ranging from 9.09% to 13.04% to mitigate losses due to obligor default or dilution. The minimum subordination level for the mezzanine shares is 2%.

- The adequate eligibility criteria of the trade receivables, represented by electronic invoices to be acquired by the issuer, which include concentration limits by client, delinquency by client and maximum term of the trade receivables. The maximum individual obligor concentration limit is 3%

- Low and stable historical delinquency and dilution levels of the sellers' trade receivables portfolio.

- Very low commingling risk as payments by obligors are made directly to the fund's segregated account that it maintains at Banco Bradesco S.A. (Ba2 long-term bank deposit rating, Global Scale, Local Currency; and Aa1.br, Brazilian National Scale)

- Braskem's sound track record sponsoring and servicing securitization transactions and the stable performance of these previous transactions. Chemical X -- FIDC is Braskem Group's tenth securitization of its trade receivables portfolio. The performance of past transactions has been in line with the original assumptions that Moody's used to rate the transactions.

During the initial 54-months of the transaction, the fund will not make principal payments to the senior and mezzanine shares and interest payments will be paid on a semi-annual basis. After the end of the grace period, the transaction will enter a final 6-month amortization period, when it will make monthly principal and interest payments. Senior and mezzanine shares will follow the same amortization schedule.

Amortization payments to the mezzanine shares will only be allowed (1) after the fund has made the scheduled senior amortization payments; and (2) as long as the fund maintains the minimum senior subordination ratio. As long as there are senior and mezzanine shares outstanding, partial amortization payments to junior subordinated shares are allowed upon a unanimous consent of all subordinated shares investors, provided that the minimum subordination level for senior and mezzanine shares is met.

Commingling risk is mitigated because obligors are instructed to pay directly into a segregated account in the name of the fund by means of pay slips that Banco Bradesco and other selected collection banks generate. The seller must remit any monies they receive to the segregated account within two business days. A non-automatic acceleration event (evento de avaliação) is triggered if payments made directly to the seller's account are higher than 5% of fund's net assets for two consecutive months or three alternates months over a 12 months horizon. The seller will act as primary servicer.

Moody's analyzed the seller's receivables pool for the 36-month period reviewed by E&Y starting in October 2014 and ending in September 2017. During this period, Braskem generated BRL 95.4 billion of trade receivables from approximately 1,019,180 separate invoices. As modeling input assumptions, Moody's used a central mean of 0.30% monthly dilutions and 0.11% monthly losses over the outstanding balance, and it assumed portfolio turnover of 30 days. Moody's calculated loss assumptions using as a proxy delinquencies from 91 to 120 days past due receivables over the total pool.

Moody's sensitivity analysis provides a quantitative, model-indicated calculation of how Moody's rating of a structured finance security could vary if certain input parameters used in the initial rating process differed. Moody's key ratings model assumptions for this transaction are Braskem's rating, loss rate and dilution rate.

Stress scenarios:

If Moody's downgraded Braskem's rating to Ba2 from Ba1 and the loss rate and dilution rate doubled, the ratings on the senior and mezzanine shares would remain the same.

Factors that would lead to an upgrade or downgrade of the ratings:

Factors that may lead to a downgrade of the ratings include an increase in defaults and dilution levels beyond the level Moody's assumed when rating this transaction and a deterioration in the credit quality of Braskem. The performance of Braskem's trade receivables, may be affected, among other factors, by international competition in the petrochemical industry and a severe economic downturn.

The principal methodology used in these ratings was "Moody's Approach to Rating Trade Receivables-Backed Transactions" published in May 2015. Please see the Rating Methodologies page on www.moodys.com.br for a copy of this methodology.

Further details of Moody's analysis of the Chemical X - FIDC can be found in the pre-sale report, published on www.moodys.com.br.

Moody's National Scale Credit Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale credit ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".za" for South Africa. For further information on Moody's approach to national scale credit ratings, please refer to Moody's Credit rating Methodology published in May 2016 entitled "Mapping National Scale Ratings from Global Scale Ratings". While NSRs have no inherent absolute meaning in terms of default risk or expected loss, a historical probability of default consistent with a given NSR can be inferred from the GSR to which it maps back at that particular point in time. For information on the historical default rates associated with different global scale rating categories over different investment horizons, please see https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1113601.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions of the disclosure form.

This transaction is considered as structured finance product in accordance with Instrução CVM nº 521.

Moody's took into account one or more third party due diligence assessment(s) regarding the underlying assets or financial instruments (the "Due Diligence Assessment(s)") in this credit rating action and used the Due Diligence Assessment(s) in preparing the ratings. This had a neutral impact on the ratings.

The Due Diligence Assessment(s) referenced herein were prepared and produced solely by parties other than Moody's. While Moody's uses Due Diligence Assessment(s) only to the extent that Moody's believes them to be reliable for purposes of the intended use, Moody's does not independently audit or verify the information or procedures used by third-party due-diligence providers in the preparation of the Due Diligence Assessment(s) and makes no representation or warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability or fitness for any particular purpose of the Due Diligence Assessment(s).

The analysis relies on a Monte Carlo simulation that generates a large number of collateral loss or cash flow scenarios, which on average meet key metrics Moody's determines based on its assessment of the collateral characteristics. Moody's then evaluates each simulated scenario using model that replicates the relevant structural features and payment allocation rules of the transaction, to derive losses or payments for each rated instrument. The average loss a rated instrument incurs in all of the simulated collateral loss or cash flow scenarios, which Moody's weights based on its assumptions about the likelihood of events in such scenarios actually occurring, results in the expected loss of the rated instrument.

Moody's describes the stress scenarios it has considered for this rating action in the section "Ratings Rationale" of this press release.

Information sources used to prepare the rating are the following: parties involved in the ratings and public information.

Information types used to prepare the rating are the following: financial data, economic and demographic data, debt documentations, legislation, by-laws and legal documents, historical performance data, public information, Moody's information, and regulatory filings.

Sources of Public Information: Moody's considers public information from many third party sources as part of the rating process. These sources may include, but are not limited to, the list available in the link http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_193459.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

Please see the ratings disclosure page on www.moodys.com.br for general disclosure on potential conflicts of interests.

Moody's America Latina Ltda. may have provided Other Permissible Service(s) to the rated entity or its related third parties within the 12 months preceding the credit rating action. Please go to the report "Ancillary or Other Permissible Services Provided to Entities Rated by Moody's America Latina Ltda." in the link http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1127644 for detailed information.

Entities rated by Moody's America Latina Ltda. and the rated entities' related parties may also receive products/services provided by parties related to Moody's America Latina Ltda. engaging in credit ratings activities within the 12 months preceding the credit rating action. Please go to the link http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1127651 for a list of entities receiving products/services from these related entities and the products/services received.

The date of the last Credit Rating Action was 9/5/18.

Moody's ratings are constantly monitored, unless designated as point-in-time ratings in the initial press release. All Moody's ratings are reviewed at least once during every 12-month period.

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.br.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Please see ratings tab on the issuer/entity page on www.moodys.com.br for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com.br for further information.

Please see Moody's Rating Symbols and Definitions on the Ratings Definitions page on www.moodys.com.br for further information on the meaning of each rating category and the definition of default and recovery.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com.br for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com.br for additional regulatory disclosures for each credit rating.

Joao Daher
Analyst
Structured Finance Group
Moody's America Latina Ltda.
Avenida Nacoes Unidas, 12.551
16th Floor, Room 1601
Sao Paulo, SP 04578-903
Brazil
JOURNALISTS: 800 891 2518
Client Service: 1 212 553 1653

Daniela Jayesuria
VP - Senior Credit Officer
Structured Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's America Latina Ltda.
Avenida Nacoes Unidas, 12.551
16th Floor, Room 1601
Sao Paulo, SP 04578-903
Brazil
JOURNALISTS: 800 891 2518
Client Service: 1 212 553 1653

No Related Data.
© 2018 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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